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This article explores the legal options available to commercial landlords for recovering rent arrears if a tenant is no longer able to pay their rent during the coronavirus outbreak.
Dispute Resolution|18 March 2020
Insight
As measures to delay and tackle coronavirus significantly ramp up, businesses are looking for the best way to continue to operate as normal in the increasingly uncertain economic climate.
As a commercial landlord, you will be no different and will have your own set of pressures to cope with.
In spite of the chancellor’s package of support measures, we understand the serious concerns that you are likely to have about the foreseeable impact that this situation will have on your commercial lease arrangements and your tenants’ ability to make their rental payments over the coming months, or even for the remaining period of their lease.
Regardless of the current pandemic, your tenants are still contractually obliged to pay you rent, unless their lease or tenancy agreement expressly provides for a suspension of rent in these exceptional circumstances. However, such a clause is very rare.
Unlike commercial contracts, commercial leases in England and Wales do not typically allow for this or include what is known as force majeure provisions, which allow a party not to be liable for not complying or delaying complying, with a contractual obligation in certain situations such as circumstances that are beyond their reasonable control.
Given that COVID-19 has been classified as a notifiable disease, we recommend asking your tenants to check whether they can recover rental payments under their business interruption insurance. This will depend on the specific wording of the policy and the scope of the insurance coverage.
If your tenant is no longer able to pay their rent, there are various legal options available to you to recover rent arrears. You can find more information and advice on these options by downloading our free commercial rent arrears guide.
However, whilst the guide sets out the legal options and the advantages and disadvantages of each, the situation that we all find ourselves in is entirely unique and both landlords and tenants are understandably worried.
The sensible first option and sound commercial and pragmatic advice in these unprecedented times would be to talk to your tenant at the earliest opportunity and see if you can agree on a way forward, even if this is for an initial period of a few months. It will buy your tenant time while they review their business continuity plan and financial position; and a negotiated outcome would at least keep cash flowing, to some degree, for both parties.
We would also echo this sentiment for tenants, talk to your landlord to see what agreement can be reached if you are struggling. If, however, an amicable resolution is just not possible, then the legal options remain available dependent on the circumstances.
For landlords, we advise that you carefully consider which method you use. Depending on how long non-payment continues, trying to recover rent arrears is likely to affect any right that you have to bring the lease to an end by forfeiture.
In addition, where your tenant has entered into a form of insolvency, you may need the court’s permission to use any of the legal recovery options and will be determined according to the type of insolvency.
In this fast-moving environment, we urge you to keep abreast of any legislation that will affect your rented commercial properties, and to maintain an open dialogue with your tenants, given the challenging times that we are all facing.
Some of these remedies may also apply to private landlords of residential accommodation and effect statutory rights to issue notices to recover possession.
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