Protection for commercial tenants on the high street

Published by

TBM Team

At the end of April, the Government announced further measures to limit the ability of landlords to take action against commercial tenants for non-payment of rent, writes Anna Larbi, legal director, Blake Morgan.

These new measures supplement provisions introduced by the Coronavirus Act 2020, which prevents all commercial tenants from being removed from their properties until June 30 2020. This effectively cuts off forfeiture for non-payment of rent, service charge and other sums due under commercial leases as a remedy for landlords.

Commercial tenants still vulnerable

Some landlords had sought to circumvent the spirit of those measures by exercising their rights to take other action against commercial tenants for non-payment of rent, such as the Commercial Rent Arrears Recovery (CRAR) procedure, statutory demands and winding-up proceedings. Those options are now off the table for landlords for now.

These additional measures will be included in the Corporate Insolvency and Governance Bill which the UK Business Secretary set out earlier in April in the case of winding up petitions, and in secondary legislation in the case of CRAR.

The effect of these measures is:

to temporarily void statutory demands and winding up petitions issued to commercial tenants where the company’s inability to pay is the result of COVID-19;

to prevent the use of CRAR action unless 90 days or more unpaid rent is owed.

It is intended that these measures will run initially until June 30, to tie in with the existing temporary forfeiture prohibition measures, although this end date can be extended by the Government if appropriate.

Safeguarding the high street

The Government has stated that the aim of these measures is to safeguard the high street and provide tenants with breathing space while lockdown continues.

However, it is important for tenants to realise that as things stand, rent and other sums payable under commercial leases continue to fall due and be payable to landlords despite lockdown and the Government measures introduced. This means that unless tenants have agreed otherwise with their landlords, all the measures do is delay the consequences of non-payment until after June 30.

Most landlords and tenants have been working together to reach agreement around this issue with agreements being reached including:

monthly payments, sometimes in arrears to help businesses with cashflow;
rent deferrals for the March quarter rent with repayment over 3-12 months;
rent reductions or holidays for the March quarter rent.

To address this the Government has called on commercial tenants to continue to pay rent where they can afford it and for landlords to show forbearance at this time. However, this does put the immediate burden on landlords since they are effectively prevented from taking action against tenants who cannot or will not pay rent.

The British Property Federation, British Retail Consortium and Revo who represent the UK’s largest property owners and retail chains have written to the Government to propose a furlough space grant scheme, similar to those set up in other European countries to share the burden between landlord and tenants.