The Coronavirus Act 2020 came into force on 26 March 2020 to provide protection to many aspects of society. One such group are retail tenants on the High Street – Michael Lewis explores the latest position.
One of the key features of the Coronavirus Act (“the Act”) legislation, in relation to landlords and tenants are a moratorium on wind ups, bailiffs and forfeiture. As a recap, forfeiture is when a landlord takes back possession of the premises. Provided there is a forfeiture provision in the lease, a landlord does not need a court order and can simply change the locks.
The Act provides a moratorium on forfeiture of commercial leases for non-payment of rent. Rent is defined to include any amount payable under the lease. Thus, this applies to all payments required to be made by a tenant including service charge, insurance payments, utilities etc.
The forfeiture moratorium applies as from 26 March 2020 and, after a series of extensions, has now been extended until 25 March 2022, or such later date as may be specified. This means that, whilst the moratorium is in place, a landlord will not be able to evict a tenant for non-payment of rent. Many commentators have shown surprise at the length of this extension and no doubt landlords are dismayed.
A landlord also has lost other recovery methods such as sending in the bailiffs to seize goods to the value of the debt. The Commercial Rent Arrears Recovery (CRAR) can only be used where tenants owe at least 544 days’ principal rent.
A landlord continues to not have the option of threatening Insolvency. There will be an additional three month extension (from 30 June 2021 until 30 September 2021) on the blanket prohibition on statutory demands and the restriction on winding up petitions based on a company’s inability to pay its debts (unless the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company). Arguing that COVID-19 has not had a financial impact on your tenants finances is not an attractive or straightforward argument for landlords.
The inability to forfeit, send bailiffs in, or commence the insolvency process portrays a picture of tenants being in the driving seat and landlords being in an extremely weak and vulnerable position. However, landlords do have one weapon in their armoury.
A less known fact is that there is not protection in place from stopping a landlord simply suing the tenant for rental arrears.
Recent Westfield Case
The courts have been prepared to follow this principle as reinforced by a case brought by Westfield against a tenant earlier in the year.
Many Retailers will be concerned after the High Court ordered a tenant to pay Westfield £160,000 in unpaid rent and service charges that accrued during the pandemic. The retailer had not paid any rent since April 2020. Westfield sought payment for rent amounting to £166,884 and interest at the contractual rate.
The High Court granted Summary Judgment in its claim against the retail tenant without the need for a full trial; signalling in no uncertain terms the Court’s approach and that it is prepared to enforce the terms of leases. The Code of Practice in place for landlords and tenants to settle the position regarding rental payments was deemed to be merely guidance.
Helen Dickinson, CEO at the BRC, said: “This case highlights the weakness of the Code of Practice in that it doesn’t change the legal liabilities of the tenant with regards to rent. Thousands of retailers were legally forced to close by Government restrictions during the pandemic, and thus had little or no income with which to pay rents. While the rent enforcement moratorium has been welcome, it has left the County Court Judgment loophole open that landlords can exploit. The Government must tackle the issue of rent arrears in a way that is equitable to all parties, and doesn’t ignore the loss of trade to shops who have been closed for most of the last 12 months. Unless a more imaginative approach is found, many otherwise viable businesses will be forced into administration, closing shops, costing jobs, and jeopardising future tax revenue for the Chancellor.”
What next after the Moratorium?
The government has made clear, and indeed the recent case referred to above that, tenants cannot view this “break” as an indefinite silver bullet.
The extension to the moratorium on commercial evictions is to allow time for negotiations to take place but the government has also confirmed that where parties cannot agree a mutually beneficial outcome in respect of COVID-19 arrears, new legislation will step in and compel the parties to a binding arbitration process. There is little further information about this and whether arbitrators can provide for payment plans/variations to leases.
Landlords and tenants will be watching carefully what proposals are set out, in the meantime, there will inevitably be further cases where landlords issue court proceedings for rental arrears.
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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.