COVID-19: Update – Further Protections to be introduced for Commercial Tenants
Landlords will no longer be able to use corporate insolvency procedures to recover rent arrears during the COVID-19 crisis.
27 April 2020
On 25th March 2020, the Government introduced initial protective measures for commercial tenants during the COVID-19 pandemic. Barely a month later, the Government has announced that there will be further restrictions aimed at shielding commercial tenants from legal action taken by landlords to recover unpaid rent. These additional emergency measures will be included as part of the Corporate Insolvency and Governance Bill.
These new measures supplement provisions introduced by the Coronavirus Act 2020, which effectively cut off forfeiture (right of re-entry to the property) for non-payment of rent as a remedy for landlords. You can read our earlier commentary on this legislation here.
What are the proposed new restrictions?
The new restrictions are intended to temporarily ban landlords from using corporate insolvency measures such as statutory demands and winding-up petitions to recover rent where the commercial tenant’s inability to pay is as a result of COVID-19. The time period for how long these additional protections will be in place mirror the original measures in respect of forfeiture i.e. 30th June 2020 but subject to extension.
What is the impact of these new restrictions?
The practical result is that landlords are effectively prevented from taking action against tenants who cannot or will not pay rent. However, it is important to note that rent and other sums payable, such as service charges, under commercial leases will continue to fall due and be payable despite these government measures. This means that unless tenants have agreed otherwise with their respective landlord, the measures merely delay the consequences of non-payment until after 30th June 2020 (or any statutory extension of this date).
The Government’s press release published on 23rd April 2020 focuses heavily on concerns about the impact of COVID-19 on high street retailers and the “aggressive rent collection” actions of a minority of landlords. However, it remains to be seen how the issue of non-payment of rent in an environment where little turnover is being generated will play out across all commercial sectors. Where possible, landlords and tenants continue to be strongly encouraged to work together on reaching agreement in cases where the tenant is having genuine difficulties in meeting their rent obligations. The Commercial Property team at Carson McDowell continue to work closely with both landlords and tenants to explore and advise on options such as amending lease terms (including break clauses and the level of rent payable) and the early surrender of premises during these uncertain times.
If you have any queries please contact Oliver Tighe or a member of the Real Estate team at Carson McDowell for further information.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.