The government has announced its intention to extend the duration of measures that will be of interest to landlords and tenants of commercial premises.
The philosophy which under pins these measures is to protect businesses as the lockdown restrictions are eased. Business secretary Alok Sharma MP sai:, “From clothes stores to our local book shop, we want as many high street businesses as possible to emerge from the pandemic, in the best position to bounce back”.”
A summary of these new measures is as follows:
- Moratorium on forfeiture: The Coronavirus Act 2020 (the Act) came into force on 26 March. Currently the Act restricts the landlord’s ability to forfeit during the period commencing 25 March until 30 June due to arrears of rent and other sums. The government has announced that this period will now be extended to 30 September. The provisions apply in England and Wales and Northern Ireland. The Scottish Parliament would need separately to legislate to deal with leases in Scotland.
- Commercial Rent Arrears Recovery( CRAR): On 25 April, the government introduced regulations which restrict the use of CRAR to cases where the minimum amount of net unpaid rent (meaning the annual rent that is payable by the tenant for occupation of its premises) to an amount equivalent to 90 days’ rent. Prior to that the minimum amount was that equal to seven days’ rent. The government will change the law to prevent landlords using CRAR unless they are owed 189 days of unpaid rent. This restriction will be in force until to 30 September.
- Winding up petitions: The Corporate Insolvency and Governance Bill is making its way through Parliament. Although the final form of the Bill may change, it will place a temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its debts due to the coronavirus. Among the Bill’s detailed provisions, is a provision to prevent a creditor issuing a winding up petition on non-payment under a statutory demand served on or after 1 March until 30 June 2020, or, if later, one month after the Bill becomes law. The government has announced that it has tabled an amendment to the Bill which will extend the temporary ban on the use of statutory demands and winding-up petitions, until 30 September.
Code of practice for commercial property relationships during the COVID-19 pandemic
Throughout the pandemic, the government has sought to encourage landlords and tenants to collaborate on the question of rental payments. In the government’s press release dated 23 March 2020, which outlined the original protection afforded to business tenants, community secretary, Robert Jenrick MP said: “We know many commercial landlords are already setting a great example by working closely with tenants and offering rent deferrals or holidays”.
The government has gone a step further and published a voluntary code of practice for the commercial property sector. The Code recognises that the current pandemic and the Government restrictions introduced to constrain it, represent an unprecedented challenge to both tenants and landlords. The government calls on tenants who can pay their rent in full to do so. Those who cannot pay should communicate with their landlords and pay what they can. Landlords should also provide support to businesses if they are able to do so.
Tenants who are unable to pay in full should seek to agree terms with their landlord to pay what they can, taking into account the principles of the Code. The stated intention of the Code is to allow landlords to support those tenants who are in greatest need and to maintain development activity which will contribute to economic recovery. Tenants seeking concessions should be clear why these are needed and are encouraged to be open in discussions and provide financial information. The Code suggests that landlords should provide concessions where they reasonably can, taking into account their own fiduciary duties and financial commitments. When landlords refuse concessions, they should be clear with tenants about why they are doing so by providing a reasonable explanation of their decision. The Code recognises that each position will be different.
However, it does set out some options that may be appropriate, such as a full or partial rent-free period, deferral of whole or part of the rent and variations to reduce ongoing payments to a current market rate.
The application of the Code is voluntary. However, many trade bodies have already signed to pledge that it will ask its members to follow the code. No doubt, in the coming months, both landlords and tenants will monitor carefully adherence to the principles set out in the Code as and when the restrictions on use of property are relaxed by the government.