Commercial rental arrears and the options available for landlords

Commercial rental arrears and the options available for landlords is discussed in the latest blog from our Head of Litigation, Solicitor Susan Lewis.

As we have previously reported, the Government has now lifted the moratorium on forfeiture for commercial rent arrears as of 25 March 2022. The moratorium was in place to support tenants who were unduly impacted by the Covid-19 restrictions and forced closures in place for many industries and sectors during the worst of the pandemic.

This means that commercial landlords are once again able to use a number of different methods to either regain possession of their premises or recover the sums owed from tenants which they have been precluded from utilising over the last couple of years.

Whilst many landlords may be eager to press ahead with their chosen strategy, it is important to note that despite the moratorium being lifted there still remains restrictions upon the method which can be applied to any rent which is called as “protected rent debt” under the new legislation brought in by the Government called the Commercial Rent (Coronavirus) Act (the Act).

This Act makes clear that any claims relating to “protected rent debt” can only be resolved by using a new binding arbitration scheme established by the Act. We would therefore recommend that landlords carefully consider the extent to which the sums they are owed fall within the scope of the Act before taking any further action. This may determine the strategy Landlords will decide to follow and in relation to which debts.

The options available to landlords are listed below. 

Forfeiture

Landlords are now free to forfeit the tenant’s lease if their lease contains a forfeiture clause and if any “unprotected” rent arrears are outstanding within the terms of the forfeiture clause. If your tenant owes both protected and unprotected arrears, then landlords must be clear about which debt they are relying on when exercising their right to forfeit.

We would recommend a careful review of your lease and any forfeiture clause before action is taken to forfeit a lease.

Commercial Rent Arrears Recovery (CRAR)

Alternatively, landlords can use the Commercial Rent Arrears Recovery (CRAR) procedure which allow landlords to instruct an authorised agent to seize tenant’s goods and sell them to recover any unprotected arrears owed. Again, this procedure cannot be used to try and recover protected rent arrears.

Since June 2021, landlords were prevented from using this statutory procedure unless a sum equal to at least 554 days’ rent was owed. However, the minimum amount outstanding before a landlord can exercise CRAR has now reverted to pre-pandemic levels and is the equivalent of 7 days’ unprotected rent debt rent 

Winding up petitions

Restrictions on the issue of winding-up petitions were imposed under the Corporate Insolvency and Governance Act 2020.These restrictions however came to an end on 31 March 2022. As a result, from this date commercial landlords will once again be able to issue statutory demands and present winding up petitions against companies owing unprotected rent debt.

We would recommend careful consideration is taken of whether this is an appropriate route to take before such action is taken however. 

Debt proceedings

If a landlord is owed unprotected rent debt, it can issue formal court proceedings in order to recover this debt.

The new Act allows either party to apply to the court to stay any debt proceedings which are issued on or after 10 November 2021 where all or part of the monies owed constitute protected rent debt. This moratorium will apply until the earlier of 24 September 2022 or the conclusion of an arbitration commenced under the Act. It is also possible the Government will extend this moratorium again. Consequently, where a tenant owes both protected and unprotected rent debt, landlords are advised at this stage to only issue proceedings in respect of unprotected rent to avoid the risk of their claim being struck out.