- Commercial landlords: recovery of unpaid rents update
Commercial landlords: recovery of unpaid rents update
Commercial landlords: recovery of unpaid rents update24th March 2021 - Published by Kuits Commercial Property team
Can a Landlord forfeit a lease at present?
There is currently a moratorium on forfeiture for non-payment of rent, including service charge and insurance rent, until at least the end of June 2021. Unless the parties have made an agreement to the contrary, a tenant still has an obligation to pay rent due under the lease. A landlord is protected from inadvertently waiving the right to forfeit for non-payment of rent by continuing to demand rent and a landlord can still forfeit by peaceable re-entry in relation to other breaches.
In respect of other breaches, landlords should still be mindful of not waiving the right to forfeit by continuing to demand rent.
What is the current position on taking possession proceedings?
All possession proceedings were stayed for 90 days from 27 March until 30 September 2020 and can now be recommenced. If a landlord has a claim which was issued before 3 August 2020, it has to serve a “reactivation notice” for its stayed claim to be listed or relisted.
How can a landlord recover unpaid sums?
Rent Deposit Deeds
A landlord can draw down unpaid sums from a security deposit in accordance with the terms of the rent deposit deed in place. The deed should be checked as different types of insolvency will impact on the landlord’s ability to withdraw sums from the deposit amount.
If the tenant goes into administration and the administrators are using the property for the purposes of the administration, a landlord may wish to rely on the deposit to cover dilapidations liabilities instead of unpaid rents, which an administrator cannot be called upon to pay towards. If there is uncertainty about whether a tenant will enter into an insolvency process, a landlord may be best advised to draw down on the deposit before the insolvency event happens.
If there is a guarantor to the lease, whether under the lease itself or an authorised guarantee agreement or a third party guarantee, the landlord may be able to recover unpaid rent from the guarantor. Guarantee provisions will survive a disclaimer of the lease where a tenant’s liquidators disclaim the lease.
A landlord may be able to recover rent arrears from former tenants and their guarantors, although they should be mindful of the controls and strict timescales when seeking to do so.
If the lease is an old lease, granted prior to 1 January 1996, a landlord can recover from the original tenant or any former tenant who has given a direct covenant.
If the lease is an new lease, granted after 1 January 1996, a landlord can recover arrears from the former tenant if that former tenant had given an authorised guarantee agreement (AGA) or from a guarantor who has guaranteed the performance of one under a AGA.
A formal notice is required to be served within six months of sums falling due.
What is the position on Commercial Rent Arrears Recover (CRAR)?
CRAR allows landlords, upon advance notice, to seize goods from the demised premises to cover unpaid rent.
Where a tenant has sublet premise and the tenant is in arrears, the CRAR procedure gives the landlord a right to serve notice requiring a subtenant to pay rent directly to the landlord rather than via its own landlord. If the subtenant fails to do so then the landlord can exercise CRAR and other remedies, to the extent not restricted by COVID restrictions.
Landlords have been prevented from using CRAR unless an amount of at least 90 days’ rent was due – before the COVID-19 pandemic it was seven days or more. Now, at least 366 days’ rent must be due in order for the landlord to use CRAR; this limit applies until at least 30 June 2021.
Can a landlord consider issuing a statutory Demand and/or and Winding-Up proceedings
At present a landlord cannot issue a statutory demand, and has been unable to since 1 March 2020, or a winding up petition against a tenant company unable to pay amounts which are due as a result of COVID-19. The ban has been extended until at least 30 June 2021. The landlord would have to show that coronavirus has not worsened the debtor’s financial position or the debtor could not have paid its debts even if there been no worsening of its financial position.
The evidential burden on landlords is likely to make the procedure more expensive and time consuming.
A landlord is not currently prevented from issuing proceedings for recovery of a debt.
There is an indication that further steps may be introduced from 1 July 2021 and a further update will be provided as matters develop.