A landlord is not obliged to accept a request for rent reduction or suspension. However, it may not be able to enforce the obligation to pay rent if it has closed premises or made them impossible to use without this being required by the Government. Here are some remedies that a landlord might be able to use:
A landlord faced with unpaid rent may be able to avail itself of any rent deposit. It could attempt to require the tenant to top up the deposit. If the premises are closed or incapable of beneficial use save as a result of a Government requirement, a court may say that the deposit has been used as a result of the landlord's breach of the lease and refuse to enforce the terms of a rent deposit deed.
A guarantee, including any AGAs, will be enforceable to the extent that the tenant's breach of covenant is properly enforceable against the tenant. The guarantor usually has the same defences to a claim by a landlord as the tenant has. Subject to this and the validity of the guarantee, landlords can continue to recover under guarantees.
Court claims for payment of rent
Landlords can still start court claims to recover rent as a debt.
If a landlord shuts premises without a tenant's agreement or Government requirement and then brings court proceedings to recover unpaid rent, the tenant would be likely to counterclaim for losses resulting from the closure and a court would almost certainly award the tenant damages amounting to the rent that they would have paid, other charges under the lease and losses arising from any loss of business. This would more than set off the amount owing for rent and other charges.
With the suspension of forfeiture for unpaid rent resulting from Covid-19, the Government may provide more general recommendations or requirements for how arrears of rent occurring now are to be recovered. Courts may not want to process debt claims for rent quickly, but we anticipate that claims could be processed in six to eight weeks.
Commercial Rent Arrears Recovery ("CRAR")
Landlords are not now entitled to use the CRAR statutory regime unless they are owed rent for 457 days from 25 March 2021 and 554 days between 24 June 2021 and 30 June 2021 or more.
Threats to wind up
CIGA has made statutory demands for rent served after 1 March 2020 ineffective. It has also made winding up petitions issued after 26 April 2020 ineffective, except if a landlord reasonably believes that i) Covid-19 has not had an adverse financial effect on the tenant; or ii) the facts supporting the ground for winding up the tenant would have arisen even if Covid-19 had not had an adverse financial effect on the tenant. On issuing a winding up petition, a landlord will be required to give a statement to that effect to the court, supported by a statement of truth. Petitioning for winding up of tenants will be a more complicated method for landlords until at least 31 March 2021.
Arrears of rent is the ground for forfeiture that entitles a landlord to change locks without notice. The Coronavirus Act (the "CA") has made it illegal to forfeit leases to which Part 2 of the Landlord and Tenant Act 1954 ("Pt2 LTA 1954") applies for arrears of rent until 31 March 2021. The Ministry of Housing, Communities and Local Government (the "MHCLG") has stated that this is intended to apply to all commercial leases whether or not they fall within Pt2 LTA 1954. It has not clarified whether this applies to commercial leases when the tenant is not in occupation. We think it must as otherwise a superior landlord could forfeit an intermediate commercial lease thereby terminating an occupational sub-lease subject to any application for relief.
Rent is defined in the CA as any sum a tenant is liable to pay under a relevant business tenancy. The MHCLG confirms that this relates to any sum and not just any sum that is reserved as rent under the lease. The CA includes existing arrears within this protection and so it would seem that the arrears do not have to be arrears that accrue from the March 2020 quarter onwards. This, together with the ban on statutory demands and winding up proceedings, is likely to give tenants a stronger negotiating position when seeking to agree rent suspensions.
These protections do not prevent a landlord from taking steps to forfeit for other breaches of lease. Most leases will contain forfeiture rights on the happening of various insolvency events. If this includes balance sheet insolvency, many tenants are likely to face being in this situation as their cash reserves are used during the current period of no trading. As a result of CIGA, tenants with financial problems may be able to obtain moratoria preventing forfeiture as a result of insolvency.
Currently, the legislation does not change the position in respect of existing enforcement action. Whilst tenants that go into arrears of rent will be protected from eviction in the short term, they will need to repay the arrears in full plus accrued interest once the protection is lifted (which will be on 1 July 2021) to avoid facing forfeiture (or other) proceedings at that point.
Keep open clauses
Leases which contain rents calculated on the basis of turnover, particularly in the retail sector, often oblige tenants to stay open for business during normal opening hours. Courts can require tenants to keep premises open. This is usually only the case where a tenant is an anchor store or has some other special significance to a landlord. A court has discretion whether to award specific performance or damages for loss of profit as a remedy for a tenant's failure to keep premises open. In the present cicumstances, the balance of convenience between the landlord and the tenant is likely to persuade a court to refuse a claim by a landlord for specific performance. Instead the court is more likely to award damages for loss. This is particularly the case if the nature of the premises means that the tenant is required to remain closed to the public, including many of those in the leisure and hospitality sectors.
Recovering rent directly from sub-tenants
When a tenant is in arrears of rent, a landlord is permitted by section 81 of the Tribunals, Courts and Enforcement Act 2007, to serve a notice on any sub-tenant of the premises requiring it to pay rent directly to the landlord until the arrears have been cleared. While in principle this offers an alternative way of getting rent paid, the suspension of CRAR also restricts this remedy. In any event, the increase in the amount of arrears that needs to be owing before a landlord can exercise CRAR from 7 to 457 days from 31 March 2021 means that over five quarters' rent must be in arrears to entitle a landlord to obtain rent directly from the sub-tenant.