**UPDATE – 9 December 2020. The Government has today announced the following:
- the ban on forfeiture for non-payment of rent is extended to 31 March 2021.
- the restrictions on the use of CRAR are extended to 31 March 2021.
- landlords may not issue winding up petitions based upon statutory demands served between 1 March 2020 and 31 March 2021.**
Where are we now?
Covid-19 and the related lockdown rules have caused pressures for everyone. For commercial landlords, there have been lots of rule changes since the first lockdown in March. In this post we will take a brief look at the position as we approach a second lockdown and the end of 2020.
Please note that as a result of the ever-changing legislation and guidance, this note is accurate as at the date of publication. We will seek to keep our website updated.
Rent arrears
Let’s start with rent. Many tenants hit by restrictions are struggling to meet their continuing rent payments. But as a landlord, what options are open to you?
Forfeiture for non-payment of rent
Well firstly, it is important to remember that, unless agreed with you, tenants are still liable to pay rent that accrues. However, the government has prohibited landlords from forfeiting commercial leases for non-payment of rent only. This will remain the case until 31 December 2020, unless the government extends the ban further. We will keep you updated.
CRAR – Commercial rent arrears recovery
The usual rule for using CRAR is that there should be more than seven days’ rent outstanding. However, to give added protection to tenants during lockdown, this has been increased several times. As it stands, landlords may not use CRAR unless the tenant has at least 276 days’ arrears. This will increase on 25 December 2020 to 366 days’ arrears.
This restriction is currently in place until 31 December 2020, unless the Government extends it further.
There are also various restrictions on bailiffs entering properties.
Statutory demands and winding up petitions
As it stands, landlords may not issue a winding up petition based on a statutory demand served between 1 March and 31 December 2020 (‘the Relevant Period’).
It is, however, possible to issue a winding up petition based on something other than a statutory demand served during the Relevant Period. This could be as a result, for example, of a court judgment, or a statutory demand served before 1 March 2020. However, if you do this, you must show that Covid-19 has not worsened the tenant’s financial position; or that they could not pay their debts even if there had been no such worsening of their financial position.
What can a landlord do?
There is nothing stopping a landlord issuing court proceedings for a money judgment. However, it is worth noting that enforcing that judgment may be made difficult by the restrictions in place on bailiffs entering properties and on winding up petitions.
Further, depending on the terms of the lease, landlords may be able to draw down on the rent deposit. However, the Government guidance says that landlords should not require tenants to ‘top up’ deposits “before it is realistic and reasonable to do so”.
It may also be possible to pursue a guarantor or previous tenant for unpaid rent.
Other breaches of lease
Forfeiture for other breaches of lease
During lockdown, commercial landlords may still forfeit leases for breaches of lease other than rent arrears, for example disrepair or subletting without consent. Tenants may still seek relief from forfeiture. Judges have a discretion as to granting relief. Some judges may be more lenient in granting relief if the tenant shows that the breach was as a result of Covid-19 and/or lockdown.
Dilapidations
The law surrounding dilapidations remains the same as it was pre-lockdown. Therefore, there is nothing to stop a landlord bringing a claim during or after the end of the fixed term.
We work closely with surveyors and we are seeing that Covid-safe property inspections are still going ahead, maintaining social distancing.
In the usual way, terminal dilapidations claims will follow the dilapidations protocol, which applies to commercial tenancies. We will shortly write more about the protocol and how to approach dilapidations claims as a landlord or a tenant. It is important to note the current potential difficulties with enforcement, however.
If you are a commercial landlord and are looking to pursue your tenant for dilapidations and/or another breach of lease, or if you would like some advice about what to do about your tenant’s rent arrears during lockdown, please contact Ed Smith on 0113 297 1875 or esmith@levisolicitors.co.uk.
