ARTICLE
9 September 2021

Coronavirus And Rent Enforcement In England And Wales

WL
Withers LLP

Contributor

Trusted advisors to successful people and businesses across the globe with complex legal needs
The Coronavirus Act 2020 contains a number of measures to shield occupiers from the economic impact of the pandemic. Restrictions curtailed landlords'
United Kingdom Real Estate and Construction

The Coronavirus Act 2020 contains a number of measures to shield occupiers from the economic impact of the pandemic. Restrictions curtailed landlords' options for enforcement action against tenants but the government is now formulating a roadmap to 'business as usual' with some restrictions already lifted.

In its Code of Practice, the government strongly encourages landlords and tenants to agree terms deferring or waiving an appropriate proportion of rent arrears. However, the courts have unsurprisingly refused to allow tenants to use the Code of Practice as a defence in rent recovery proceedings.

Given the mixed success and limited reach of the Code of Practice, a Policy Statement published by the UK Government on 4 August 2021 announced that legislation will be introduced to 'ring-fence' certain rent arrears. Its scope is expected to be limited to rent arrears which accrued from March 2020 for commercial tenants who were affected by coronavirus business closures until the time restrictions for their sector were removed. A binding arbitration system will also be introduced along the lines of that implemented in Australia in order to deal with 'ring-fenced' arrears. Given the scale of the rent shortfall (in the billions), the government is framing the arbitration system as a 'last resort' for landlord and tenants who are still expected to try to reach an amicable agreement.

A central message from the government is that if tenants can pay rent, they must pay.

Forfeiture of commercial premises and

The Coronavirus Act 2020 contains express safeguards for business tenants restricting a landlord's ability to forfeit a lease for non-payment of rent. An initial moratorium suspended a landlord's power of re-entry or forfeiture on the basis of non-payment of rent and other sums due under the lease, whether failure to pay rent related to COVID-19 or not. This measure has been extended five times, most recently to 25 March 2022. However, a Policy Statement published by the UK Government on 4 August 2021 characterised 25 March 2022 as a 'backstop' which may be shortened if legislation is brought in earlier.

The extended protection from forfeiture automatically prolongs the restrictions against landlords enforcing Commercial Rent Arrears Recovery (CRAR). This is a method of debt recovery which allows a landlord to instruct enforcement agents to seize and sell goods owned by a tenant to satisfy rent arrears. The minimum total net unpaid rent that must be outstanding before CRAR can take place was increased: from 7 days' net unpaid rent (prior to the pandemic) to 544 days' rent. The August Policy Statement similarly introduces a 25 March 2022 backstop, after which restrictions on landlords' use of CRAR will be dropped.

Corporate insolvency

Statutory demands are sometimes used to exert pressure on tenants to pay outstanding liabilities. The failure to satisfy a demand enables a landlord to commence court proceedings to put the company into liquidation. The threat of liquidation is often sufficient to persuade the tenant to pay.

The Corporate Insolvency and Governance Act 2020 ('CIGA 2020') suspends the use of a statutory demand for this purpose. Proceedings to liquidate a company cannot be commenced for failure to satisfy a statutory demand served between 1 March 2020 and 30 September 2021.
In addition, a creditor can only present a winding up petition before 30 September 2021 on the basis that a company cannot pay its debts as they fall due if they have reasonable grounds for believing that:

1. coronavirus has not had a financial effect on the company; or
2. the company would have been unable to pay its debts even if coronavirus had not had a financial effect on it.

In many cases, it will be difficult to establish that the company's failure to pay its debts is not due to the pandemic, and so for practical purposes landlords will be unable to present a petition until after September 2021.

Residential possession proceedings

Since 29 August 2020, the notice period landlords are required to give residential tenants with statutory protection before commencing possession proceedings has been extended. The notice period will vary according to when notice was served. Landlords who served notice on tenants after 1 June 2021 must generally now give at least four months' notice. There are limited exceptions, such as where a tenant has accrued rent arrears to the value of over 6 months' rent.

Having suspended almost all possession proceedings in March 2020, the courts began considering cases again on 21 September 2020. The courts are prioritising the most serious cases such as where there are allegations of fraud, or alleged arrears equal to at least 12 months' rent.

The government lifted measures protecting residential tenants from eviction on 31 May 2021. Accordingly, bailiffs may now serve eviction notices on residential tenants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More