Reed Smith Client Alerts

The government has announced that it is introducing temporary new measures to safeguard commercial tenants against “aggressive” debt recovery actions during the coronavirus pandemic.  Statutory demands and winding up petitions issued against commercial tenants where the company’s inability to pay the debt owed is due to COVID-19 are to be “temporarily voided” and landlords are to be prevented from using commercial rent arrears recovery (CRAR) unless 90 days or more of unpaid rent is owed.

Authors: Katherine A. Campbell Lynsey Claire Ellard Mandip Englund Patrick Schumann

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The announcement by the government further restricts the remedies available to commercial landlords for recovering arrears of rent and other payments due from their commercial tenants.

The new measures, which will be included in the Corporate Insolvency and Governance Bill, include preventing the use of statutory demands and winding up petitions where a company cannot pay its debts due to the coronavirus.  The government is also enacting secondary legislation to prevent landlords from exercising CRAR to recover rent arrears unless 90 or more days’ rent is owed.  These new measures will be in force until at least 30 June 2020 and can be extended in line with the temporary suspension on commercial lease forfeiture.

How these measures will work in practice remains to be seen.  Whilst Covid-19 has clearly had a significant impact on tenants and such instances may be rare, there may be some circumstances where tenants who do have sufficient cash to pay rent, simply choose not to given the protection from forfeiture recently implemented by the government. In such cases, the measures appear to put the onus on landlords to demonstrate that the non-payment of rent is not necessarily due to cashflow issues arising from Covid-19, which would require access to financial information that landlords simply will not have. Any winding up petitions that are presented to the court for issue will need to be reviewed by the court to determine the reason why the tenant is unable to pay the debt that is owed and whether the petition ought to stand.  And where a petition is allowed to continue because the debt is non-pandemic related, the hearing of the petition is unlikely to take place for at least 12 weeks.

Notwithstanding these measures, the government has called upon tenants to pay rent where they can afford to do so in recognition of the financial pressures that landlords are also facing at this time.  The government has again emphasised the need for landlords and investors to work collaboratively with commercial tenants that are unable to pay their bills due to the coronavirus pandemic.