COVID-19: Further protection for commercial tenants and companies generally
May 1, 2020
It has been a number of weeks now since the Coronavirus Act 2020 came into force on 26 March 2020.
In terms of protection for commercial tenants, section 82 of the 2020 Act contains various provisions restricting a landlord’s ability to forfeit relevant business tenancies during “the relevant period” for non-payment of rent. The relevant period is defined under section 82(1) as beginning with the day after the day on which the Act is passed and ending on 30 June 2020 (though this period may be extended). Section 82 prevents the landlord from, amongst other things, enforcing a right of re-entry for non-payment of rent by action or otherwise during the relevant period; further, if High Court proceedings have already commenced to enforce a right of re-entry for non-payment of rent, any possession order must ensure that the tenant does not have to give possession before the end of the Relevant Period.
Further, Practice Direction 51Z, which was brought into force on 27 March 2020, provided that for a period of 90 days commencing on 27 March 2020, all proceedings for possession brought under CPR Part 55 and all proceedings seeking to enforce an order for possession by a warrant or writ of possession would be stayed.
However, there were concerns amongst commercial tenants that the existing measures did not offer sufficient protection. In particular, commercial landlords still had other options for rent recovery including:
- Serving a statutory demand and issuing a winding up petition
- Exercising commercial rent arrears recovery (CRAR)
- Issuing a Part 7 claim for rent arrears
- Drawing down a rent deposit
- Claiming against guarantors.
On 23 April 2020, the government issued a press release confirming that it is to introduce further temporary new measures to “safeguard the UK high street against aggressive debt recovery actions during the coronavirus pandemic”.
It was noted in the press release that while the majority of landlords and tenants are working well together to reach agreement on debt obligations, some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics.
As a result, the government will “temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April through to 30 June, where a company cannot pay its bills due to coronavirus”. The measures will be included in the Corporate Insolvency and Governance Bill.
There is also to be secondary legislation to help tenants by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.
As the draft legislation is not yet available, the detailed mechanics of how these measures will operate are not clear.
However, the press release as updated does explain that under these measures, any winding-up petition that claims that the company is unable to pay its debts must first be reviewed by the court to determine why (this appears to suggest that there will be a preliminary review by the Court prior to a listing). The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of COVID-19.
It appears from this that although the context of the press release/announcement is in relation to commercial tenants, the new measures may have a much wider impact outside of a landlord and tenant context. It seems from the wide wording in the press release that creditors generally will be prevented from using the winding up procedure in the period stipulated where it could be shown that the alleged inability to pay is the result of COVID-19.
Accordingly, at present, it seems that if a company were faced with an impending winding up petition, the threat of advertisement or a winding up order, it would be possible to raise an argument on any application to restrain or disputed hearing that any inability to pay is due to COVID-19, perhaps in addition to any other arguments about whether the debt is disputed or not. The issue of whether any inability to pay is due to COVID-19 may well require a hearing to determine.
The new measures undoubtedly offer greater protection and breathing space to companies which may be suffering from financial difficulties. The Corporate Insolvency and Governance Bill has not yet been enacted. However, in view of the contents of the press release, companies may well be able to raise such arguments in the meantime to try and at least maintain the status quo by restraining presentation, advertisement or delaying an order for winding up.