Beware, the day of reckoning is nigh
Details
*Update: the day of reckoning has been postponed until 01 April 2021. The government has extended the ‘relevant period’ until 31 March 2021. This means that landlords cannot forfeit relevant business tenancies for non-payment of rent until 01 April 2021, or exercise CRAR before 01 April 2021 unless at least 366 days’ rent is owing. The moratorium on using statutory demands to start winding-up proceedings has been similarly extended, so that a statutory demand served between 01 March 2020 and 31 March 2021 (inclusive) may not be used to justify the presentation of a winding-up petition.*
As 01 October approaches, commercial landlords and tenants need to decide how they are going to react to the expiry of the emergency protections that have benefitted business tenants since March.
Our previous article considered the emergency measures that the government had put in place to protect business tenants from forfeiture and Commercial Rent Arrears Recovery (CRAR) until 30 June 2020.
On Friday 19 June, the government announced that those protections would be extended until 30 September 2020, with the CRAR threshold raised again to 189 days’ unpaid rent.
The restrictions on statutory demands and winding-up petitions were finally enacted on 25 June and are discussed in a previous article.
The common thread with all three protections is that – unless there is a further last-minute extension - they all expire on 30 September 2020. On Thursday 1 October, the gloves are off and battle can recommence.
The government hopes that landlords and tenants will continue to play nicely. The government published its ‘Code of Practice for commercial property relationships during the COVID-19 pandemic’ on 19 June. The Code, which enjoys considerable industry support and applies until 24 June 2021, encourages transparency and collaboration. However, since adoption of the Code is entirely voluntary, landlords and tenants need to be prepared for 1 October.
Tenants must be mindful that the protections simply restrict a landlord’s remedies against tenants who have been unable to pay rent during the lockdown. They do not create a rental holiday, and tenants who have withheld the March and/or June quarters’ rent are in breach of covenant, even if there may be little the landlord can currently do about it.
On 1 October, those tenants will once again become vulnerable to forfeiture, CRAR and statutory demands. Tenants who are still unable to pay the outstanding rent should therefore prioritise seeking to reach and document an agreement with their landlord to waive or defer the outstanding rent. The protections will offer tenants little assistance with the September quarter’s rent, which is due the day before the protections expire.
Landlords also need to be careful. Section 82 of the Coronavirus Act (the section that protects business tenants from forfeiture) specifically provides that landlords do not waive the right to forfeit the lease by treating the lease as continuing during the ‘relevant period’. But once the relevant period expires on 30 September, landlords will need to either act promptly or else risk waiving the right to forfeit. Accepting the September quarter’s rent on 29 or 30 September will therefore be ok, but accepting it on or after 1 October will probably be sufficient to waive the right to forfeit the lease for non-payment of the March and/or June quarters’ rent.
In situations where rent has not been paid during lockdown and no alternative arrangements have been agreed, landlords and tenants should be taking advice now, so that they know how to act and respond when 1 October arrives.
