Commercial leases – Payment of rent in a Covid-19 era
In March the Government announced a 3 month moratorium to stop landlords taking any action against tenants that had missed their rental payments due to Coronavirus. The moratorium placed a restriction on landlords being able forfeit the lease or take Commercial Rent Arrears Recovery (also known as “CRAR”) to recover the sums due. Further to this, the Government placed restrictions on issuing statutory demands or winding up petitions, which was another avenue that landlords may have thought to pursue. The moratorium was due to expire on 30 June 2020, just after the next quarter’s payment due date on 25 June 2020.
The Government was facing extensive pressure from bodies within the hospitality and leisure sector to extend the moratorium and they have now bowed to that pressure. At the end of last week, the Government issued secondary legislation to extend the period of the moratorium to 30 September 2020. They also issued a new Code of Practice for parties to a Commercial lease where they have been impacted by the Coronavirus. The Code of Practice is not mandatory, it is voluntary, but we anticipate that Judges will take into account whether the Code has been followed if any cases for non-payment are taken to Court.
What does the Code say?
The voluntary code encourages tenants to pay in full where they can but suggests that landlords should provide support to those who can’t. The foreword to the Code states:
“This code will support businesses to come together to negotiate affordable rental agreements. It builds upon the discussions already taking place by giving those tenants and landlords affected by the crisis the tools to come to a mutually beneficial agreement; ensuring that best practice becomes common practice.”
The Government acknowledges that the moratorium that is in place cannot last forever and they hope that the Code will be adopted as a transitional measure while businesses start to reopen and find their feet. The Code encourages parties to work together to find a solution for both the landlord and the tenant. It also encourages tenants to be open with the landlord about their financial situation so that the landlord can make reasonable decisions about what they may accept in the interim while businesses are still struggling.
What does this mean for landlords?
It means potentially another quarter where rent is not paid in full and there are few options for landlords to do anything, apart from accept the reduction in the hope that now businesses are allowed to resume operations that things will improve. Non-essential shops were allowed to open from 15 June 2020 with additional measures in place to protect customers. With the announcement on 23 June 2020 that pubs, restaurants and hairdressers can open from 4 July 2020 this will hopefully mean that some income will be coming in for businesses that may not have seen any business since March. In turn, hopefully landlords will start to see some of that additional income being used towards their rental payments.
If you need any further advice regarding a commercial lease or to discuss arrangements with a landlord or tenant, then do not hesitate to contact Claire Darby on 0208 949 9500 or cdarby@pearsonhards.co.uk.
