5 safeguards to protect commercial tenants struggling to meet their financial obligations

Blogs

Whilst the COVID-19 Government lockdown is easing and non-essential shops have been allowed to open, last week saw many retailers and corporate tenants struggling to meet their June Quarter Day payments. Whilst it is hoped that the gradually easing will assist businesses from a cash flow perspective, there is no denying that millions of commercial tenants are being impacted by cashflow pressures. This article explores the assistance available to commercial tenants during these difficult times.

Court Proceedings – Whilst landlords are still entitled to pursue debts through the courts by obtaining a county court judgment and enforcing the judgment against the tenant’s assets, it is important to note that the Government have banned the service of statutory demands and winding up petitions for companies until at least 30 September 2020.

Commercial Rent Arrears Recovery (CRAR) – The amount of rent that must be unpaid to entitle the landlord to serve a CRAR notice or seize goods under the CRAR has increased from 90 days to 189 days. This would mean that until at least 30 September 2020, a landlord would be unable to take action, even where a tenant has been unable to pay anything for two quarters.

Extension to forfeiture restrictions – The Government has extended the restriction preventing landlords from forfeiting a tenant’s lease for non-payment of rent from 30 June to 30 September 2020. Whilst, this may be welcomed news for commercial tenants, it is important to remember that unless agreed otherwise, the tenant will still be liable for any rent and other sums that remain unpaid plus the accrued interest. It should also be noted that a landlord can still pursue forfeiture proceedings for tenant breaches that are non-financial (e.g. a breach of the repairing covenants).

Code of Practice – The Ministry of Housing, Communities and Local Government have published a code of practice for commercial property relationships during the COVID-19 pandemic which is intended to reinforce and promote good practice amongst landlord and tenant relationships as they deal with the income shocks caused by the pandemic. The code encourages landlords and tenants to work responsibly and collaboratively, particularly in light of difficulties faced by the tenant.

Financial Support – Financial assistance initiatives such as rates relief and bounce bank loans may assist commercial tenants with their cash flow issues and are particularly common in the retail, hospitality and leisure sectors.

If you are a commercial landlord or tenant and require further assistance, please do not hesitate to contact Pranav Bhanot (pbhanot@meaby.co.uk) or Aileigh Brough (abrough@meaby.co.uk) of our property litigation team on 020 7703 5034.