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Commercial rent arrears and Covid-19: forfeiture, winding-up petitions and the use of CRAR

Posted: 15/01/2021


Throughout the current pandemic, there have been remedies available to commercial landlords in relation to unpaid rent arrears and other tenant breaches - though the introduction of the Corporate Insolvency and Governance Act 2020 had a significant impact on insolvency-based enforcement options.

At present, the restrictions on exercising forfeiture, Commercial Rent Arrears Recovery (CRAR), and presenting a winding-up petition - for unpaid commercial rent arrears – have all been further extended to 31 March 2021.

To be clear, the position in relation to the remedies which otherwise remain available to commercial landlords in the case of both rent arrears and other tenant breaches remains unchanged from previous guidance.

Forfeiture

The Business Tenancies (Protection from Forfeiture: Relevant Period) (Coronavirus) (England) (No 3) Regulations 2020 (SI 2020/1472) came into effect on 30 December 2020 to further extend the prohibition on exercising forfeiture for unpaid commercial rent arrears to 31 March 2021. The restriction has also been extended in Wales pursuant to the Business Tenancies (Extension of Protection from Forfeiture etc.) (Wales) (Coronavirus) (No 3) Regulations 2020 (SI 2020/1456).

Commercial rent arrears (CRAR)

There must now be a minimum of 366 days’ rent in arrear in order for a landlord to exercise CRAR during the period 25 December 2020 – 31 March 2021.

As explained in this factsheet, CRAR allows a landlord to instruct an enforcement agent to take control of a tenant’s goods and sell them to realise an amount to cover rent arrears. However, the use of CRAR is limited to rent ‘proper’ (ie not service charges or insurance rents etc) and involves a number of prior steps to be undertaken before the enforcement agent can actually enter the tenant’s premises to exercise the same.

Winding-up petitions

The restrictions on presenting a winding-up petition brought in by the Corporate Insolvency and Governance Act 2020 have also been extended to 31 March 2021 by the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No 2) Regulations 2020 (SI 2020/1483).

As detailed here, while it is not necessary for a landlord to serve a statutory demand in respect of unpaid rent arrears before presenting a winding-up petition in relation to the same, the restrictions preventing the presentation of a winding-up petition (to 31 March 2021) will nevertheless still apply unless the landlord is able to demonstrate that the pandemic has not had bearing on the tenant’s ability to pay.

Comment

It appears landlords are now increasingly turning to the courts seeking money judgments to recover arrears. The threat of proceedings alone is often enough to prompt payment by those tenants who can afford to pay. County Court Judgments (CCJs) are perceived as having a serious impact on the availability of credit. Tenants may defend claims on technical legal grounds by reference to lockdown and its impact but there does not seem to be any conclusive evidence that those arguments have succeeded to date.

It remains to be seen how landlords will act once the ban on forfeiture for unpaid rents (which will have been in place for an entire year by 31 March 2021) is lifted. While forfeiture is often described as the landlord’s ‘ultimate weapon’ against unpaid rents, taking back possession of premises which may be difficult to re-let in the current market is unlikely to be an attractive proposition due to the various void costs that will inevitably be incurred on doing so. This is also assuming, of course, that the restrictions are not further extended…

Position stated as at 15 January 2021. Detailed advice should be taken in every case before considering any legal action.


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