Additional help for embattled Commercial Tenants

In the first of two articles, Robin Cole, Principal, Blanchards Bailey, Commercial Property team, summarises key arrangements in place to help struggling commercial tenants, including additional legislation announced last week.

On 23 March, the UK government announced their intention to ensure that commercial tenants who could not pay their rent because of coronavirus would be protected from eviction.  The relevant provision, preventing Landlords from forfeiting commercial leases, is now set out in section 82 of the Coronavirus Act 2020. The protection initially applies until 30 June 2020 but can be extended if needed.

Timely though this intervention was – according to press reports less than half of commercial rents due on the March quarter day (24 March) had been paid by the start of April – more aggressive landlords quickly sought to overcome the restriction by issuing statutory demands and threatening, or actually commencing, winding up proceedings.

However, further help is now at hand: the Ministry of Housing, Communities and Local Government published their intention to introduce additional temporary measures:

• invalidating statutory demands issued to commercial tenants between 1 March and 30 June 2020 and winding up petitions presented from 27 April through to 13^th June and
• limiting landlords’ powers to recover rent by recovery of goods belonging to tenants – through use of the commercial rent arrears recovery (“CRAR”) procedure.

The government hopes the ban on the use of statutory demands and winding up petitions will help ensure that businesses in distress will have the breathing space they need to generate the funds and liquidity essential to their ability to meet their financial obligations.

If you rent commercial premises, and are in need of financial assistance, it is crucial that you are aware of the following key points:

1. The deferred enforcement regime is just that – deferred. It covers rent, insurance, service charge and interest but there is no suggestion that any amounts that fall due are being waived. In essence, the initial arrangements (which can be extended beyond 30 June) merely provide you with some much needed breathing space.
2. Whilst the legislation rules out forfeiture during the relevant period, there are no restrictions on Landlords remedies against an existing guarantor (including any liable under an authorised guarantee agreement) or the right of the Landlord to withdraw monies from any rent deposit arrangement, which event would cause the tenant to become liable to “top up” the deposit under the rent deposit arrangements.
3. Not all commercial leases benefit from the protections – the forfeiture moratorium provisions apply only to a “relevant business tenancy“, and this does not include business leases having a term of six months or less unless that lease contains the right to renew beyond six months or where appear where a period of prior occupation together with the lease term exceeds 12 months.
4. If you are planning to exercise a break option in your lease in the near future, check carefully to identify whether the right to break successfully depends on your having paid the rent (and other sums) up to date; it is a common feature of many commercial leases that the right to break is dependent on your having done so, and in some cases, to a rent payment date beyond the actual break date.

From as early as mid-March, large numbers of tenants have been asking landlords to negotiate rent holidays, reduced rents and/or alternative payment schedules on rental obligations.  We expect this will intensify as we approach the June quarter day.

In some cases, simple arrangements have been quickly and easily agreed – like the conversion of quarterly rent demands (payable in advance) into monthly payments; in others, rent holidays or longer periods of deferral have been agreed with commercial landlords where need can be demonstrated.  But the approach varies widely, with a range of factors influencing landlords’ attitudes towards individual tenants.   With allegations that major retailers (including some who were classed ‘essential’ and continue to trade throughout the lockdown), had sought to take undue advantage of the moratorium, it is little wonder that trust is in short supply.

We have wide ranging experience of helping commercial tenants in just these circumstances. The key in more complex negotiations is to engender trust and a willing to demonstrate justification, and the deployment of other cashflow mitigating arrangements.  In the second of these two articles, “Commercial Tenants – Negotiating Covid 19 Concessions”, we set out some key points on how to seek help in the current climate, and the sort of questions you can expect professional landlords to raise.

If you would like further clarification or are affected by any of the above issues, contact Robin Cole today on 01258 483598, we will be more than happy to discuss your particular circumstances with you.