For many industries in the UK, it has been ‘business as usual’ following the easing of Covid restrictions. Of course most of the population are now happy to see their favourite establishments back open for business. However, questions remain on the minds of commercial tenants and landlords and the rental arrears that accrued during Covid-19. Commercial landlords have been prevented from serving statutory demands on their tenants for Covid-related rent arrears. On 1 October, the legislation changed the position slightly, giving commercial landlords the chance to recover arrears (other than rent).
A statutory demand is a written demand for payment of a debt served on a person who owes another person money (a debtor). Historically, in order to issue a statutory demand, the debtor must owe the creditor £750 or over and it must be owing for more than three weeks. Failure to comply with the statutory demand puts the debtor at significant risk of the creditor issuing bankruptcy or winding-up proceedings.
Throughout the pandemic, the Government put restrictions on when a creditor could use a statutory demand against a debtor. On 1 October, the Government lifted these restrictions.
If a debtor does not comply with a statutory demand, creditors ordinarily may have been eligible to issue winding-up proceedings against the debtor. Generally speaking, a winding-up petition is the procedure of putting a company into compulsory liquidation on the grounds that the company is unable to pay its debts.
The restrictions on commercial landlords serving statutory demands
Covid-19 has had a significant impact on many businesses and by extension, their ability to pay debts. As a result, the Government restricted landlords presenting winding-up petitions for commercial rent arrears built up during Covid-19. The Government have confirmed that this will continue until March 2022.
However, from 1 October 2021, more specific restrictions will come into force that provide commercial landlords the ability to recover payments from their tenants other than commercial rent.
What does this mean for landlords?
Crucially, the new legislation continues to restrict statutory demands or applications for winding-up petitions for non-payment of rent. However, it does provide that commercial landlords may be able to recover unpaid sums, other than commercial rent, from the commercial tenant. This could include unpaid service charges, maintenance costs or insurance for example. To be eligible for payment:
- The tenant must owe the commercial landlord £10,000 or more. This figure must not include commercial rent arrears; and
- The commercial landlord must be able to show that they have that they have requested payment proposals from the commercial tenant before seeking winding up action. The Government have advised that landlords should afford the tenant 21 days to respond to proposals before pursuing action.
What does this mean for tenants?
It is expected that, by increasing the threshold for a landlord to bring a winding up petition, the new legislation will help protect smaller businesses.
The Government has placed the onus on the parties to negotiate payment plans to remunerate landlords. The 21 day response deadline to payment proposals gives tenants sufficient time to review their cash flow and make sensible offers to their landlords to make payment. Commercial tenants with the means to pay, should make payment as soon practicable.
If you have any queries regarding commercial rent arrears, we can help. Contact our commercial property disputes team today on 0800 988 7756. In our free initial discussion we can explain how we can help and give you a realistic costs estimate.