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COVID-19 property litigation update

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By David Hitchcock

On 16 June 2021, the government announced further extensions to the ban of forfeiture, winding up and Commercial Rent Arrears Recovery (CRAR), in respect of commercial property. Those measures are likely to leave many landlords feeling frustrated, but the government emphasises the need to negotiate fair agreements with commercial tenants.

The Coronavirus Act 2020 ‘CVA 20’, which was introduced to protect business from the financial impact of restricted trading during lockdown, contains protections for commercial tenants that restrict the ability of landlords to forfeit leases for non-payment of rent during the ‘Relevant Period’.

Although originally planned to last until 30 June 2020, it has been extended on numerous occasions, and the latest announcement sees it pushing forward until 25 March 2022, the longest extension to date.

The government has said it intends to pass new legislation which will ‘ring-fence’ rent arrears which have built up over the course of the COVID-19 Pandemic. Landlords and tenants will be encouraged to reach an agreement regarding the treatment of the rent arrears, with landlords expected to “share the financial impact with their tenants” ¹ suffered, due to restricted trading over the last fifteen months, by waiving part of the debt or agreeing a long term repayment plan. It is said the legislation will only apply to businesses impacted by closures, such as hospitality, although the full extent is not yet clear.

Where agreements between parties cannot be reached, it is proposed that a binding arbitration process will be put in place, which is intended to give landlords peace of mind that debt will be settled fairly and with finality.

In the meantime, the extension to restrictions under Section 82 of the CVA 20 ² prevent the right of forfeiture for non-payment of rent, either through the Court system or by “changing the locks”. Landlords may still be able to forfeit due to breaches of other covenants.

As before, landlords will not be deemed to have waived their right of forfeiture unless they give an express waiver in writing. However, it seems likely that the new legislation may prevent landlords from forfeiting due to non-payments during specified periods of the pandemic for businesses which were prevented from operating during lockdown.

Other usual avenues landlords may wish to use to pursue unpaid rent will also remain subject to restrictions. The CRAR procedure will require the net amount of unpaid rent to be 554 days before it can be used, and at any rate cannot be enforced until March 2022.

The moratorium on winding up petitions will also be extended until 30 September 2021, where the debts are related to the pandemic. While it is possible to serve a statutory demand during this time, there would be little hope of satisfaction for landlords, as they would be required to prove they have reasonable grounds for believing that COVID-19 has had no financial impact on the company in debt; or that the debt issues would have risen regardless of the impact of the pandemic on the company. Any landlords hoping to pursue this route and the end of the Relevant Period should expect long delays as the courts deal with a backlog of cases.

The government has reminded businesses that as restrictions lift, tenants should be preparing to pay outstanding rent or negotiating a voluntary agreement with their landlords if they have not already done so.

¹ https://www.ons.gov.uk/economy/economicout-putandproductivity/output/articles/ukeconomylat-est/2021-01-25 

² https://uk.practicallaw.thomsonreuters.com/w-024-6678?originationContext=document&vr=3.0&rs=PLUK1.0&transitionType=DocumentItem&contextData=(sc.Default)&first-Page=true&firstPage=true#co_anchor_a603662 

For further information, please contact david.hitchcock@twmsolicitors.com

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