Recovering Commercial Rent Arrears and The Commercial Rent (Coronavirus) Act 2022 – Where Are We Now?
As detailed in our previous article, as a result of the Covid-19 pandemic the Government implemented The Coronavirus Act 2020 which, amongst other things, offered protection to Tenants of commercial premises by imposing a moratorium preventing Landlords exercising most of the usual remedies for the recovery of rent arrears. A lot has happened since then, but where we are now?
The Commercial Rent (Coronavirus) Act 2022 (“the Act”)
The moratorium imposed by the Government expired at the end of March 2022.
To prevent Landlords taking immediate action in relation to outstanding arrears, the Government implemented the Act, which offered a further period of protection to Tenants, preventing Landlords from exercising their usual remedies in relation to ‘Protected Rent Debts’, those being rents due under a tenancy between 21 March 2020 and 18 July 2021 when the business in question was subject to a closure requirement.
The Act implemented an arbitration scheme which entitled both Landlords and Tenants to refer matters to an Arbitrator to decide whether the Tenant was entitled to relief in relation to their protected rent arrears, but the deadline for the matter to be referred to arbitration was 25 September 2022.
Beyond 25 September 2022
In the event either Landlord or Tenant did not refer the matter to arbitration by 25 September 2022, all protection offered by the Act in relation to the rent arrears is lost.
The result being that a Landlord could exercise their usual remedies (as set out below) and, irrespective of the financial position that the Tenant is in as a result of the Covid-19 pandemic, it could not use is it as a defence to any claim or remedy exercised by the Landlord.
This will be welcome news for Landlords of Tenants who, despite being in strong financial positions, have refused to settle arrears on the basis that the Act afforded them protection.
Tenants still in arrears who were reliant upon the protection of the Act and did not refer matters to arbitration should be conscious of their vulnerability to any of the remedies available to the Landlord.
Options for Landlords
Now that it is “open season” in relation to commercial rent arrears, Landlords should ensure they seek advice as soon as possible in relation to the outstanding arrears. Taking steps to recover the debt sooner, rather than later, will improve the likelihood of recovery and avoid further arrears accruing which may see the Landlord recover pence on the pound in the event of the Tenant becoming insolvent.
As a brief reminder, some of the options open to Landlords are:
- Forfeiture of the Lease – however, Landlord’s will need to ensure that they have not waived their right of forfeiture in respect of the previously protected arrears before forfeiting the lease;
- Issuing Court proceedings for the recovery of the debt;
- Commercial rent arrears recovery (CRAR);
- The service of a statutory demand and the subsequent presentation of a winding-up petition; and
- Pursuing former tenants that are subject to an Authorised Guarantee Agreement and/or pursuant guarantors