Landlord’s remedies for non-payment of rent during Covid-19

United Kingdom |  Publication |  agosto 2021

This is a quick reference guide for landlord’s remedies for non-payment of rent during COVID-19. Every effort has been made to ensure the timeframes stated in this document are accurate, but Government regulations continue to evolve rapidly in response to the COVID pandemic and landlords should obtain legal advice in respect of each case.

Remedy Current legal position
Serve statutory demand and issue winding- up petition
  • Until September 30, 2021, landlords cannot present a winding-up petition against tenants who are unable to pay rent due to financial impacts caused by COVID-19.
  • Landlords can continue to serve a statutory demand, but this is unlikely to prompt payment from tenants given the restrictions on the subsequent presentation of winding-up petitions.
  • Landlords can pursue a winding-up petition if there are reasonable grounds to believe that (1) COVID-19 has not had a financial impact on the tenant, or (2) the tenant’s debt issues would have arisen in any event. However, this will be difficult for many landlords to substantiate given that most tenants are likely to have been impacted by COVID to some extent.
Forfeiture of lease or right of re-entry (either by court proceedings or peaceable re-entry)
  • Until March 25, 2022 (or 30 September 2021 in Wales), landlords cannot exercise a right of re-entry or forfeit a lease for non-payment of rent (‘rent’ includes any sum a tenant is liable to pay including service charge or insurance contributions).
  • A landlord can only waive its right to forfeit for non-payment of rent if it confirms the waiver to the tenant expressly in writing.
  • Any court proceedings for forfeiture for non-payment of rent cannot grant a possession order requiring possession before March 25, 2022.
  • Landlords can continue to forfeit leases for breaches other than non-payment of rent. The landlord will still need to serve a s.146 notice and allow a reasonable period of time to remedy the alleged breach before the landlord can take steps to forfeit the lease. The tenant may still apply for relief from forfeiture.
Commercial Rent Arrears Recovery (CRAR)
  • Landlords can continue to exercise CRAR, but from June 24, 2021, Government regulations require that a minimum net unpaid rent equivalent to 554 days’ rent under the lease must be outstanding.
Recovering rent due from an undertenant
  • Landlords can continue to require an undertenant to divert its rent to the superior landlord rather than its direct landlord by serving a ‘s.81 notice’.
  • However, the Government regulations concerning CRAR also apply to this remedy, meaning that a minimum net unpaid rent equivalent to 554 days’ rent under the lease must be outstanding.
Drawdown on rent deposit
  • Subject to the terms of the rent deposit deed, landlords can draw down on a rent deposit and require the tenant to top up the deposit account to the minimum threshold (although the Government’s voluntary ‘Code of Practice for Commercial Property Relationships…’ ("the Code") encourages landlords not to require deposit top-ups by the tenant before it is realistic and reasonable to do so).
Recovery from third parties
  • Subject to the terms of any guarantee or AGA, landlords can seek to recover arrears from the tenant’s existing guarantor, or the former tenant or its guarantor as applicable, and commence proceedings against any such party in the event of non-payment (see ‘Court proceedings’ below).
Court proceedings
  • A landlord may commence court proceedings against its tenant for recovery of rent arrears as a debt. Landlords may also wish to consider a summary judgment application at the start of proceedings in order to expedite obtaining a judgment against the tenant.
  • Note that recent Government announcements indicate the Government will look to introduce new legislation which will impose a compulsory arbitration scheme for COVID-related rent arrears. This is likely to result in any ongoing court proceedings being superseded or stayed pending the outcome of the arbitration in each case.
Negotiate rent concessions
  • The Government’s Code encourages landlords to “share the pain” of tenants if they are able to do so.
  • Tenants are encouraged to be transparent with their landlords about the financial impact of COVID on their business. Landlords can also request information on tenants’ financial accounts in order to encourage open discussion about how to overcome any arrears, for example, waiving some of the amounts due or agreeing a longer-term repayment plan.
  • The Code does not prohibit the landlord from pursuing other remedies if it is not possible to reach agreement on rent concessions, but as a note of caution, recent Government announcements indicate that the Government will look to introduce new legislation in the coming months to impose a new compulsory arbitration process for parties in dispute over COVID-related rent arrears. No substantive details or a date for implementation of the compulsory arbitration scheme have yet been published.



Contact

David Stevens
David Stevens
Partner
Email
david.stevens@nortonrosefulbright.com
T: +44 (20) 74443597

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