Recovering rent arrears from your commercial tenants

The past 6 months have been challenging for businesses across the UK, with the Covid-19 pandemic having serious implications on the economy. The property sector has received several pieces of Government guidance throughout this period, many of which have been of benefit to commercial tenants renting their business premises.

These Government measures supporting tenants have created difficulties for commercial landlords struggling to recover rent arrears as a result.

The most commonly used remedies to recover those arrears have been restricted under the Government guidance. In this article, we outline how the remedies have been amended.

The two remedies which are usually available to landlords are:

1. Forfeiture – where the tenant is in breach of any of its obligations under the lease.
2. Commercial Rent Arrears Recovery (CRAR) – a statutory procedure which allows landlords of commercial premises to recover rent arrears by taking control of the tenant’s goods and selling them.

Forfeiture

The Coronavirus Act 2020 came into force on 25 March 2020.

This prevented a landlord from terminating certain business tenancies by forfeiture for non-payment of rent until 30 June 2020. This date was then extended until, 30 September 2020. The Government has announced that this has now been extended until 31 December 2020. The new extension came into force on 29 September 2020.

The restrictions apply to forfeiture by the landlord instructing a bailiff to change the locks as well as to forfeiture proceedings in Court. The restrictions benefit business tenancies and extend to any sum payable under the business tenancy including insurance, service charges and interest.

In respect of current forfeiture proceedings, under the Civil Procedure Rules, a stay on possession proceedings and enforcement of orders for possession was effective until 20 September but has now been lifted.

Nonetheless, the restrictions of the Coronavirus Act 2020 mean that landlords are still not entitled to issue any forfeiture proceedings for arrears which fell due since 25 March 2020. Further, Courts will not be able to make a possession order which requires a tenant to give possession of business premises for non-payment of rent to the landlord before 1 January 2021.

Commercial Rent Arrears Recovery (CRAR)

CRAR has undergone several changes over the lockdown period. Here is a breakdown of those amendments, month by month.

April

The regulations changing the use of CRAR originally came into force on 24 April 2020 and apply to enforcement action taken under that process.

The 3 key changes were as follows:

1. An increase of the threshold before CRAR can be exercised in the first place – from 7 days’ rent arrears to 90 days, for enforcement notices given between 25 April and 30 June 2020;
2. An extension, in certain circumstances, to the date by which an enforcement agent must have taken control of goods if the notice enforcement is not to lapse; and
3. An extension of the 2-year enforcement certificate that enforcement agents must hold in order to act in that capacity.

June

In June, further amendments provided:

1. The threshold before CRAR can be exercised was increased from 90 days to 189 days’ rent arrears for enforcement notices given between 24 June and 30 September 2020;
2. The restrictions on taking control of goods at premises which include a dwelling-house and goods which are found on the highway (and on the premises which an enforcement agent may not enter, re-enter or remain) were extended (those restrictions did not expire until 23 August 2020); and
3. There was a further extension to the validity period of the enforcement certificate that enforcement agents must hold.

September

The position has now been amended again: –

1. Before a landlord can exercise CRAR, the rent arrears must be a minimum of 276 days’ rent (for notices served between 29 September 2020 and 24 December 2020) and 366 days (for notices served from 25 December 2020).
2. The same limits apply to take control of goods for the first time pursuant to a valid enforcement notice.

Presently, the above-outlined restrictions will apply until 31 December 2020. It remains to be seen whether there will be a further extension in due course.

If you have any questions on how the Coronavirus pandemic may affect your ability to recover commercial rent arrears and what the above changes mean for you, please do not hesitate to contact a member of our Commercial Disputes team.

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