2021 and beyond: A wave of M&A litigation?
Partner and Head of Dispute Resolution, Nick Wells, takes a look at the likely rise in litigation in 2021 following the COVID-19 pandemic.Read more
The Government has announced many new measures and restrictions following the outbreak of COVID-19, the effect of which directly impact on the usual rights of commercial landlords, and as such appear to give commercial tenants some breathing space.
However, despite being unable to recover the property in most instances, there are still remedies available to commercial landlords to apply pressure to commercial tenants and try to ensure that their rental income is received.
It remains important for all parties to communicate to try and achieve a mutually beneficial outcome. However, commercial tenants do need to be wary of simply holding back rent due to cashflow issues as this could have a long-term impact on their own rights under the lease and the relationship with the landlord when the moratorium comes to an end.
Below, we set out to answer some of the most common queries we have received from commercial landlords and tenants since the introduction of the Coronavirus Act 2020. We will provide further briefing notes and guidance as soon as more information or clarification is available.
There is a three-month moratorium which means that landlords cannot (legally) forfeit a commercial lease for rental breaches during this time. The current end date for this is 30 June 2020, but this could be extended. In addition, failure to pay rent during this time cannot be taken into account if the landlord subsequently wants to oppose a lease renewal at the end of the term.
Unless the period is extended, landlords would be immediately able to take action to forfeit a commercial lease. Where there is no residential element, this may be possible by simply changing the locks at smaller basic premises. It would be open to the tenant to apply to the court for relief from forfeiture if they can pay the rent quickly.
In respect of existing proceedings, the court cannot order possession to be given before the end of the moratorium period. Tenants can also apply to vary conditional orders to extend the dates.
The Coronavirus Act 2020 appears to refer solely to forfeiture for rent arrears which implies that a landlord could still forfeit a lease for a breach of another term. However, this would first require service of a s146 notice giving the tenant a reasonable period of time to remedy the breach. This would then allow the tenant the opportunity to apply to the court for relief from forfeiture to prevent action if the breach was due to Coronavirus, could be remedied, or there was another reasonable explanation. The court would then consider the matter and whether to order relief or possession. These cases are unlikely to be listed for hearing by the courts any time soon.
There is no rent concession, and tenants will need to contact their landlords to try and agree payment plans or deferments. Most leases will not contain a “force majeure” clause for rent to stop in circumstances like these; therefore, the rent is due, together with interest for late payment. Landlords could draw down on rent deposits, but these will then more than likely need to be topped up by the tenant.
A landlord could still use “CRAR” (commercial rent arrears recovery) which involves a bailiff attending the premises to seize goods for sale to pay the rent. This does require service of a notice first, so the tenant should be aware that this is likely to happen and be able make contact with the landlord. Many bailiff companies are currently not carrying out visits due to social distancing measures. In addition, court proceedings for payment of the debt could still be issued, and guarantors could still be pursued.
If there is a break notice in the lease and the tenant is considering exercising this, then usually all rent will need to be up to date for this to be effective. Certain premises may, therefore, need to be prioritised for payment if this is something that is being considered.
Both landlords and tenants should check insurance policies to see what can be claimed for business interruption.
The Government has announced plans to amend insolvency legislation at the earliest opportunity. It has been announced that this is to include relaxation of wrongful trading legislation backdated to 01 March 2020 and the possibility to introduce a moratorium period to allow companies ‘breathing space’ in which to seek a rescue or restructure.
Until any such measures are introduced, landlords can continue to issue winding up/bankruptcy petitions; however, it is unlikely that these will be dealt within in the near future as they will require a Court hearing which cannot be conducted remotely, and the Courts will likely have a backlog of cases to be heard.
For more information and support on your rights as a commercial landlord or tenant, please contact us on 01332 226 480 or complete the form below.
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