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Landlord’s remedies and COVID-19 – has the pendulum swung too far?

As another week draws to a close, in a time when every day seems to bring unexpected - and often unwelcome - news, the landlord community is reeling – albeit perhaps largely in a somewhat unsurprised and resigned fashion.

This is due to the latest announcements from the government affecting the commercial landlord and tenant relationship.

Forfeiture/CRAR/statutory demand – if not now, then when?

As was widely predicted, the existing prohibition on forfeiting leases for non-payment of rent, which was due to end on 30 September, will be extended to the end of 2020. A knock-on effect of the extension on the moratorium is that the restrictions on exercising Commercial Rent Arrears Recovery (CRAR) which apply during the moratorium will also continue.

The announcement makes no mention on the current restrictions on winding-up following the service of a statutory demand, which also expires on 30 September 2020, but it would be logical for that date to be extended too.

In effect, landlords continue to be deprived of any ability to take meaningful action against tenants for non-payment of rent, whether or not the tenant is able to pay. This follows a 6 month period during which – in the main – landlords and tenants have worked collaboratively through the crisis, to ensure the survival of occupier businesses, including a host of household name retailers. Many landlords have accepted significant write-offs/deferments of rent, and have offered a number of other concessions to tenants, often for very little in return other than allowing the tenant to continue to trade, or a modest extension of the term or the removal of a break right.

It is accepted by landlords that having tenants in occupation, even on less beneficial terms, is – more often than not – preferable to empty premises. In today’s market it must also be obvious that in the vast majority of circumstances landlords will do all they can to help a tenant to continue to trade. Aside, perhaps, from a few very specific locations, landlords are hardly fighting off queues of new potential tenants, and so any suggestion that large numbers of landlords are likely to utilise forfeiture remedies or winding up petitions in anything other than extreme circumstances, simply does not stack up.

However, landlords do not have endless resources. They are not all large corporate owners. They also have debts to service and other banking covenants to comply with. There is no moratorium on the banks enforcing against property owners. Some tenants can pay and simply do not, knowing that the landlord cannot do anything in response. As the British Property Federation (BPF) has rightly argued, the industry needs certainty that this is the final extension to the moratorium, and must begin to move back to a more normal market environment.

Business interruption insurance

Many landlords and tenants have also been closely following the test case brought by the FCA in the High Court to analyse the typical wording in a number of different types of business interruption insurance policies, to determine whether the wording covered claims arising out of the Coronavirus pandemic. Our insurance team has prepared a summary of this - and the outcome is largely favourable to policyholders. Whilst the devil is always in the detail, it seems that perhaps some occupiers will be able to claim on their insurance whilst landlords are left unable to meaningfully enforce rent obligations against them.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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