Commercial Rent Arrears - What can be done?

Despite the fact that the majority of the economy in England and Wales has now re-opened as the country looks to have put the worst effects of the Covid-19 Pandemic behind it, the government has surprisingly extended the restrictions on enforcement options available to commercial landlords whose tenants have failed to pay rent.

The key points from the latest extension to the restrictions are as follows:-

  1. The ban on commercial forfeiture for unpaid rent is extended until 25 March 2022
  2. The ban on statutory demands/winding up petitions being served/presented in respect of unpaid rent under commercial leases is extended for a period of three months, with that period presumably starting on 1 July 2021;
  3. Legislation is incoming to “ring-fence” rent arrears which accrued as a result of/during the Covid Pandemic. Details are thin, but the government has said that the legislation will help landlords and tenants work together to come to an agreement as to how to handle the money owed. It is suggested that if no agreement can be reached, there will be some kind of binding arbitration scheme which the parties will have to enter into.

The announcement will come as something of a double whammy for commercial landlords. It restricts their ability to forfeit leases in respect of rent arrears which accrue in future (at least until 25 March 2022) and also looks to restrict their ability to forfeit in respect of historic arrears once restrictions are lifted. Landlords may therefore be justified to wonder what exactly they can do to try to recover arrears of rent which have accrued and, in many cases, continue to accrue.

All is not lost and there are some options available to commercial landlords.

The most obvious and effective example is to issue court proceedings to recover the rent arrears through a traditional debt claim. There has been a misconception in some quarters of the property industry that this too is prohibited. It is not. The liability to pay rent due under a commercial lease is a contractual obligation and there is little defence to that liability.

Recent high-profile cases have been decided in the landlords favour in circumstances where tenants have put forward a variety of novel defences (including frustration and rent cesser) to their liability. Here at DKLM, we have had great success in issuing debt claims against commercial tenants and this has usually resulted in payment in full being made. Where a commercial tenant wishes to continue to trade, they will usually do all that they can to avoid a CCJ being entered against them in respect of the unpaid rent and so when issuing debt claims we have often found that tenants who have the ability to pay, do pay.

This option is particularly attractive where the tenant in question is a blue-chip or otherwise well-established business which clearly does have the means to pay the rent owed and which may be using the pandemic as a means to avoid payment.

In addition to debt claims, commercial landlords do also have the option to forfeit leases for non-rent breaches. If a tenant has made unauthorised alterations, has unlawfully sub-let or has committed an actionable breach of any other covenants given in the lease, landlords are still entitled to issue proceedings to forfeit the lease and payment of any rent arrears can then be made a condition of relief from forfeiture.

So, whilst the latest extension and enhancement of the restrictions is undoubtedly frustrating, landlords do still have options available to them to recover unpaid rent.

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The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.