What can landlords do now to collect commercial rent arrears?

Posted: 12/05/2022

For the last two years, the rights and remedies available to landlords of commercial premises to collect arrears of rent from their tenants have been severely curtailed.

S82 of the Coronavirus Act 2020 banned landlords from forfeiting leases for non-payment of rent and the Corporate Insolvency and Governance Act 2020 banned landlords from issuing statutory demands and winding up petitions for debts that had arisen due to the Covid-19 pandemic. In England those restrictions ended on 25 March 2022. 

After the end of restrictions, what are the remedies now available to commercial landlords?

The answer to that question depends upon whether the rent is a ‘protected rent’ under the provisions of the Commercial Rent Arrears (Coronavirus) Act 2022, or not.

The definition of protected rent is narrow and applies only to rent which is owed by businesses within the leisure, hospitality, and parts of the retail sectors - in other words, to hairdressers, beauty salons, pubs, gyms, shops, cafés and restaurants who were forced to close by emergency legislation which came into force during the pandemic. The rent arrears which those businesses ran up during their enforced periods of closure are protected rents, under the act.

The rents of head tenants are not protected, even where the rents of the sub-tenants who are in actual occupation of the premises are protected.

Senior associate Kerra Jelbert discussed in detail which rents are protected in her article, which you can find here.

All other business rents are not protected 

For all other business tenants whose business or property was not subject to a closure requirement, all historic and current arrears may be collected by any of the following methods:

• The issue of a debt claim for the arrears.
• Service of a Commercial Rent Arrears Recovery (CRAR) Notice and enforcement by CRAR against the tenant’s goods in the property, where at least seven days arrears of rent are due and owing.
• Forfeiture for rent arrears, either by peaceable re-entry or by proceedings. The quid pro quo for this is that a landlord may now waive forfeiture by implication, and the waiver of forfeiture need no longer be by a specific waiver.
• The use of insolvency procedures. Landlords may issue winding up petitions and statutory demands based upon outstanding rent debts.
• The enforcement of obligations on tenants to top up rent deposits.
• Landlords may draw down rent deposits to recover outstanding rents where the terms of the rent deposit deed permit this.
• A landlord of a tenant whose tenancy is protected under part 2 of the Landlord and Tenant Act 1954 may oppose lease renewal on the ground of rent arrears using statutory ground (b).
• Where the lease has a guarantor, the landlord may take debt proceedings against the guarantor for the arrears.
• The landlord may also serve a s17 notice and pursue the original tenant under an authorised guarantee agreement.

Protected rents

For a six-month moratorium period which ends on the 24 September 2022, protected rents are subject to compulsory arbitration under the act, unless the landlord and the tenant can reach a negotiated agreement for settlement of the arrears.

During this moratorium, all other enforcement measures to recover arrears of protected rents are prohibited. This includes debt action, forfeiture, CRAR, drawing down rent deposits, and opposing the renewal of a tenancy under ground (b) (rent arrears) under the Landlord and Tenant Act 1954.

In her article here, associate Amy Evans sets out the restrictions which apply to the recovery of protected rents.

Can a landlord take any steps in relation to arrears of a protected rent?

There are, however, further considerations which may be of assistance to landlords in relation to protected rent, even within the moratorium period.

Where a tenant has arrears which cover both protected and unprotected periods and makes a payment for an unspecified period, the official guidance prescribes that any unprotected rent is paid first, and protected rents second. Amy’s article (see above) sets this out in more detail.

Even though enforcement action is prohibited the landlord may require rent arrears to be paid in compliance with other lease terms. 

• Specifically, the landlord can still require protected period rent to be paid if payment of all rents is a pre-condition to the exercise of a break clause.
• In the same way, protected period rent can be required to be paid for the landlord’s consent to an assignment of the lease; not paying rent may be reasonable grounds for the landlord to refuse consent to the assignment.

Crucially, in either case, if an arbitration award has been made in respect of the arrears, the landlord can only require the payment of rent up to the amount awarded by the arbitrator.

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