The government has today (Thursday, 23 April 2020) announced further restrictions, preventing landlords from taking enforcement action against tenants as result of non-payment of rent. The use of statutory demands and winding up petitions has been temporarily suspended, being labelled by the government as “unfair practices”.
The suspension complements section 82 of the Coronavirus Act 2020, which prevents landlords from forfeiting leases for non-payment of rent until 30 June 2020.
The emergency suspension measures are being introduced as part of new insolvency legislation to be implemented in the coming month. There will also be secondary legislation preventing landlords from using the commercial rent arrears recovery (CRAR) procedure unless 90 days or more of unpaid rent is owed.
The announcement comes in the wake of demands from commercial tenants in the hospitality sector for a 9 month rent holiday, and UK Hospitality setting out a six point plan to guide the government in supporting the hospitality industry.
Similar to the suspension on forfeiture only applying for non-payment of rent, creditors will only be prevented from using the statutory demand and winding up petition processes if the reason that they cannot pay is due to the COVID-19 pandemic.
The suspension is likely to apply retrospectively for statutory demands issued or winding up petitions commenced by creditors from 25 March 2020. Before allowing any petition to proceed, the Court will be required to establish the reason behind the failure to pay.
The suspension of enforcement action has been welcomed by the hospitality and retail sectors, allowing for “breathing room” against commercial landlords employing aggressive debt recovery tactics. However, the issue of unpaid rent due from 25 March 2020 has not gone away.
The government expects landlords and tenants to work together and, whilst Business Secretary Alok Sharma urges forbearance from landlords, he also signals that tenants should pay rent (or whatever proportion of the rent they can afford) to landlords who are also under pressure.
As a result of today’s announcement, other than accruing interest for late payment, commercial landlords will no longer have any enforcement options available to them in respect of a tenant not paying their rent. Much like the paralysis faced by commercial tenants in the hospitality and retail sectors, landlords are now also left without any option other than to negotiate with their tenants or wait on an uncertain future.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Paul Jagger