Covid-19 and restrictions on enforcement: 2021 update – an end in sight?

Since March 2020, when the Government passed an unprecedented raft of protective measures to restrict a landlord’s ability (in both the commercial and residential sectors) to pursue remedies for the recovery of arrears (but also other covenant breaches), the practical effect has meant that landlords have not been generally permitted to seek to take back premises from tenants based upon forfeiture for non-payment of rent during the Covid-19 pandemic. Additional restrictions on the use of Commercial Rent Arrears Recovery (CRAR) and restrictions on the service of statutory demands to prevent creditors (including landlords) from presenting winding-up petitions helped to complete this circle and afforded tenants with wide-reaching protections against enforcement action throughout 2020.

These protective measures were introduced as separate pieces of legislation but now run concurrently, and were supposed to be temporary in nature. However, throughout the course of 2020, landlords saw the availability of their usual gamut of enforcement options regularly pushed off into the horizon with the Government deciding (often very late in the day) to extend the moratorium/restriction deadlines. Since June 2020, commercial landlords and tenants have been encouraged to seek to agree rent concessions and have restructuring discussions (premised on a non-mandatory Code of Practice applying until June 2021, see here). Whilst commendable in some circumstances, this Code of Practice has not altered the fundamental underlying legal premise that, unless renegotiated with the landlord, rent arrears remain payable by tenants (and any guarantor) eventually.

The start of 2021 appears to be no different for commercial landlords, at least perhaps in the short term.

On 31 December 2020, regulations were passed extending the moratorium on bringing proceedings for forfeiture of commercial premises based upon non-payment of rent (under section 82 of the Coronavirus Act 2020) to 31 March 2021. However, this extension has been described by the Housing Secretary, Robert Jenrick, as “final” and so commercial landlords can perhaps breathe a sigh of relief that the end may be in sight before they can finally forfeit a lease for non-payment of rent without restriction. That being said, the announcement that this extension is supposed to be final was made prior to the announcement of the national lockdown on 4 January 2021, and so it is entirely possible that this date will nevertheless be extended further on the basis that the new lockdown has fundamentally changed the circumstances.

The table below lists the current enforcement rights of landlords which have been subject to restrictions, what those restrictions involve, and when the restrictions will expire.

Evictions ban announcement

Furthermore, on 8 January 2021, the Government announced that it would be extending by six weeks the ban on bailiffs conducting evictions (except for the most serious cases, eg trespass, extreme rent arrears equivalent to six months’ rent, anti-social behaviour, death of a tenant where the property is unoccupied, fraud and domestic abuse) which was due to expire on 11 January 2021.

This means that, whilst the wide-ranging stay on issuing possession proceedings at Court was lifted on 21 September 2020, the practical effect of this announcement means that no evictions can now take place until at least 21 February 2021.The Government has further stated that no evictions are expected until 8 March 2021 at the earliest and this is being kept under review.

What enforcement options remain available to landlords now?

Despite the range of protections currently available to tenants, landlords still have available to them the following range of enforcement measures either individually or in combination:

  • drawing down on rent deposits and seeking top-ups;
  • claiming against current guarantors;
  • claiming against Authorised Guarantee Agreements (AGA) or Guarantees of Authorised Guarantee Agreements (GAGA) for post-1996 leases;
  • claiming against former tenants or former guarantors for pre-1996 leases;
  • deploying the remaining CRAR remedies, subject to the additional restrictions imposed and set out in the table above;
  • (following the lifting of the stay in September 2020) issuing or progressing proceedings for possession, brought on the basis of breach of covenant other than that to pay rent (but subject to the evictions ban restriction referred to above); and
  • County Court/High Court commencement and service of proceedings for debt.

Whilst several restrictions still remain, the Government’s announcement of a “final” extension of the moratorium on forfeiting a lease for non-payment of rent until 31 March 2021 is perhaps an indication of the important balancing act that needs to be made between the competing interests of landlords and tenants, having regard for example to the fact that commercial landlords will generally have their own commitments, most critically in the form of their debt/finance arrangements.

With the national lockdown in full effect at the start of 2021, and a growing sense of unease about when things will “return to normal”, the Government’s latest announcement was an indication of some change of position. It seems entirely possible however that the current circumstances may mean that additional extensions may come into effect despite this. If so, it remains to be seen whether this will be the current (effective) blanket ban, or something more nuanced, perhaps based upon actual ability of tenants to pay. In that regard, the British Property Federation has identified what it calls a class of “can pay, won’t pay” commercial tenants that it considers may warrant an exception to the rule. The position is unlikely to be considered again by Government before early March 2021.

For further information, please contact:

Matthew Weal

Matthew Weal
Senior Associate, Real Estate Dispute Resolution, London
+44 20 7466 7535

Matthew Bonye

Matthew Bonye
Partner, Real Estate Dispute Resolution, London
+44 20 7466 2162

Rhian Arrenberg

Rhian Arrenberg
Professional Support Lawyer, Real Estate Dispute Resolution, London
+44 20 7466 2594

COVID-19: What are the new far-reaching restrictions on recovery of rent arrears?

The Government’s decision that it will temporarily ban landlords from serving statutory demands or issuing winding up petitions has sent shockwaves through much of the investment property market. In a press release on 23 April 2020, the Government announced that statutory demands served on “companies” between 1 March and 30 June 2020, and winding-up petitions presented from 27 April 2020, will be banned where the reason for non-payment of the monies set out in the demand or petition is that a tenant “cannot pay its bills due to coronavirus”. The measures build on the protections already afforded to all tenants in response to the COVID-19 pandemic, to “help ensure that [tenants] do not fall into deeper financial strain”. They supplement the suspension of a landlord’s right to forfeit a lease for non-payment of rent, whether by peaceable re-entry or the issue of proceedings, announced as part of the Coronavirus Act 2020, and supplemented by the Civil Procedure Rules Practice Direction 51Z. At the same time, the Government has announced further protection for tenants, as it has imposed restrictions that a landlord’s right to recover arrears under the Commercial Rent Arrears Recovery scheme (CRAR) and directly enforce against tenants’ assets as set out in the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020. More on this below.

At present, there is very little detail surrounding the new restrictions on statutory demands and winding up petitions, and the only source of information is the Government press release. Many questions can be posed and requests for clarification made in relation to the timing, scope and impact of these changes, including:

  • How will a court interpret the phrases “cannot pay” and “due to coronavirus”? Many businesses will have experienced cash flow issues due to the current restrictions on trade. Other businesses will have already been in financial difficulties (and possibly also arrears of rent) before the pandemic. It seems that it may still be possible to present a winding up petition to the court, but where a winding up petition is presented on the basis that a company is unable to pay its debts, the court will be called on to determine why. Where a company’s inability to pay its debts is due to COVID-19, the petitions will not be presented and winding up orders will not be made. However, similar press release wording was used before the suspension of the right to forfeit, and when the legislation itself was published and passed, the linkage between arrears and COVID-19 was not included.
  • Will the measures, like the protection from forfeiture provisions, apply equally to all tenants and lawful occupiers of commercial premises, whatever the sector in which they operate, whether the tenant remains open for business or faces any restrictions on trade, and regardless of the tenant’s financial standing?
  • Will these new restrictions also apply to service of a statutory demand on an individual or partnership (the press release talks only of companies), and presentation of bankruptcy petitions (the press release talks only of winding-up)?
  • The information provided to-date does not suggest that there would be a similar ban on other debt enforcement methods such as commencement of Court proceedings so as to obtain a County Court Judgment (CCJ) or, for example, drawing down on a rent deposit. It is also not clear as matters stand whether the legislation would prevent claims against guarantors of tenants or against former tenants or their guarantors, eg under an Authorised Guarantee Agreement.

By way of background, a statutory demand is a written demand for payment of an undisputed debt (such as rent), and can be served on an individual, partnership or a company. A statutory demand can only be served if:

  • the debt is liquidated, ie for a specific amount that has been fully and finally ascertained (such as principal rent, or a reconciled final service charge payment);
  • the debt is undisputed; and
  • the debt exceeds £750 (in the case of a company) or £5,000 (in the case of an individual).

It is not in itself a method of debt recovery, but has long been an effective way to put pressure on a tenant to pay the amounts owed. The real “punch” behind a statutory demand is the consequence of non-payment: if the sums specified in the statutory demand are not paid within 21 days of service of the demand, that non-payment is treated as evidence of the tenant’s “inability to pay the debt” and opens the tenant to the risk that it could be (in the case of an individual) declared bankrupt or (in the case of a company) placed into compulsory liquidation, and ordinarily entitles a landlord to present a compulsory winding-up petition to the court.

CRAR is a statutory scheme under which landlords of commercial property may take “self-help” measures to recover principal rent by serving an initial notice and then instructing an enforcement agent to seize goods from the demised premises and sell them to recover the arrears and the landlord’s costs. A key limitation of CRAR was always that, in order for a notice to be served and therefore begin the CRAR process, a minimum of seven days’ principal rent (CRAR cannot be used in respect of service charge or insurance payment, even if these are reserved as rent) had to be outstanding. From 25 April to 30 June 2020 (although this period may be extended), CRAR can only be used where an amount equal to 90 days’ net rent (ie more than a quarter’s rent) is outstanding, thus further limiting landlords’ right to recover arrears.

The restrictions on serving statutory demands and presenting winding-up petitions will form part of the Corporate Insolvency and Governance Bill 2020, which has not yet been published. We await it with interest. Watch this space.

For further information please contact:

Matthew Bonye
Matthew Bonye
Partner and head of real estate dispute resolution, London
+44 20 7466 2162
Rhian Arrenberg
Rhian Arrenberg
Professional support lawyer, real estate dispute resolution, London
+44 20 7466 2594