Commercial Leases and Coronavirus Update July 2020

Richard Snape, a leading authority and presenter on both commercial and residential conveyancing matters, provides an update on the recent developments in Commercial Leases

S.82 of the Coronavirus Act 2020 temporarily suspends the ability to forfeit a commercial lease for non-payment of rent.  This provision was originally due to last until 30 June 2020 but, unsurprisingly, has now been extended to 30 September 2020 with a further extension likely.  Other remedies for non-payment of rent may still be pursued such as debt claims, claims against guarantors and claiming against the rent deposit.  Commercial Rent Arrears Recovery is theoretically possible but writs of possession and writs of control are temporarily unavailable.  Furthermore, the level of arrears before this is available has increased from 7 days to 187 days.

Forfeiture for breaches other than non-payment of rent is also available but there is a temporary suspension in possession proceedings other than in relation to trespass against a person unknown.  This was originally due to last until 30 June 2020 but has now been extended to 23 August 2020.

The other major recent development is that the Corporate Insolvency and Governance Act 2020 received the Royal Assent on 25 June 2020 and came into force on the following day.  It is a major piece of legislation which is a long time in the planning.  Some provisions are permanent such as a restructuring plan whereby a company can have its business restructured at the behest of a 75% majority of the creditors.  To some extent this is similar to a Company Voluntary Arrangement but can bind both secured and unsecured creditors and not merely the latter as in a CVA.  There is also a new provision whereby companies which are insolvent or likely to be insolvent can obtain a 20-day moratorium period in which claims cannot be pursued against them.  This will be supervised by a monitor who will be a qualified insolvency practitioner.  The period can be extended for a further 20 days and further still with the agreement of the creditors or a court order.

Two provisions under the Act are temporary.  Firstly, a winding up petition may not be made for a period commencing on 27 April 2020 if the reason for the debt is due to the Coronavirus pandemic.  Likewise, a statutory demand in similar circumstances cannot be made since 1 March 2020 and no petition made since that date on the grounds that the company has failed to comply with a statutory demand.

Regardless of all the protection available for tenants who default in payment of their rent it might be wise for landlords, at least temporarily, to come to an agreement with their tenant.  This might involve a temporary reduction in the rent or, where possible, an agreement to use part of any rent deposit to allow the tenant to recover from any temporary cash flow problems.  This may include an obligation to make good the rent deposit at a later date.  Landlords should be particularly wary of losing their tenants.  In particular, in England for the year April 2020 to March 2021 in the retail, leisure and hospitality sector there will be no business rates for occupied premises.  If the premises become empty, with several exceptions, full business rates will be available after three months.

In conclusion, it is suggested that landlords might be wise to accept temporary liquidity problems of their tenants and reach a comprise for the good of all. They may also want to look into unoccupied property insurance.

Richard Snape July 2020

DISCLAIMER:  Nothing said in this article constitutes legal or other professional advice and no warranty is given nor liability accepted for the contents of this article. Richard Snape, Davitt Jones Bould and LawSure Insurance will not accept responsibility for any loss suffered in consequence of reliance on information contained in the article.