Options for landlords dealing with rent arrears following COVID-19
Following Government moratoriums on landlord enforcement options, the relationship between commercial property owners and occupiers has been turned on its head.
Many landlords have been quick to support their tenants through the period of COVID-19. But what are the options if tenants simply refuse to pay their rent without explanation or requests for help?
The following pages provide practical guidance. If you would like to talk this through, please get in touch.
The government has announced that the protection from forfeiture given to relevant business tenants under s82 of the Coronavirus Act will be extended until 31 March 2021. The temporary CRAR changes are extended similarly to 31 March 2021 to give businesses breathing space.
The Corporate Insolvency and Governance Bill will also be amended to extend the moratorium on the statutory demand/winding-up route to 31 March 2021.
These restrictions form part of the Coronavirus Act 2020 and the Corporate Insolvency and Governance Act 2020. They will last until 31 March 2021.
- Commercial Rent Arrears Recovery (CRAR) – has effectively been suspended. CRAR is only available for 189 days’ worth of arrears of pure rent and excludes any service charges or insurance.
- Statutory demands – have been rendered ineffective in real terms. This is because although they can still be served, they cannot subsequently be used in support of winding-up petitions.
- Winding-up petitions – Creditor landlords now have the burden of demonstrating a reasonable belief that the tenant’s arrears were not the result of COVID-19. This will be very difficult to prove in practice.
Debt proceedings – Court proceedings for non-payment of rent are still available. But the situation is fluid. Further Government restrictions could be just around the corner.
The starting point for the court process is to send the tenant a pre-action letter. This might also have the benefit of engaging the tenant in dialogue and lead to more cost effective alternatives to litigation: for example a payment plan, or deferral arrangement.
The only method of recovering rent arrears at present is to issue court proceedings.
Before starting a claim: You will need to send a pre-action letter or ‘letter before action’ to the tenant. This is a requirement of the Civil Procedure Rules. It will demonstrate that the tenant has been given a final opportunity to engage with you constructively and avoid litigation.
Why act now? It may not be long before debt proceedings also become subject to Government restrictions. Furthermore, the court fee for issuing the claim rises in direct proportion to the level of arrears.