Lockdown 2.0 – How Are Commercial Tenants Protected?

With the second period of lockdown now firmly in place across England, commercial tenants may need a reminder of the protective measures that were implemented by the UK Government earlier this year and how they could specifically benefit from them.

These initiatives are designed to shield the interests of commercial tenants who have felt the impact of COVID-19 on their business operations and may be unable to make their rental payments as a result.

They are as follows:

1. Landlords are not allowed to utilise Commercial Rent Arrears Recovery (CRAR) to recover any net rent that is due. This applies to any arrears of rent which has been due for less than 275 days until Christmas Day, at which point this figure rises to cover 365 days.
2. In reference to the Corporate Insolvency and Governance Act 2020, the use of winding up petitions and statutory demands to recover any rent arrears has been prohibited through to the end of 2020. However, this is only the case if the landlord has reasonable evidence to suggest that COVID-19 and lockdown have not had a negative financial effect on the tenant, or the tenant would have been unable to pay the rent arrears regardless of the pandemic.
3. Until the end of the year, landlords are no longer allowed to forfeit a tenant’s lease for any non-payment of rent, service charge, insurance and interest. However, this is only applicable if the tenant’s failure to make any of these payments is due to COVID-19. This is applicable to forfeiture/possession proceedings in Court and those exercised by “changing the locks”.

However, there are also a couple of things for tenants to watch out for:

1. Authorised Guarantee Agreements (AGAs) may be enforced by landlords to recover rent arrears through the tenant’s lease guarantor. Most commonly, this may be a parent or group company that could also be under pressure from the pandemic.
2. It is important to note that, if tenants are in breach of other covenants of their lease, they are not necessarily protected from forfeiture in the same way. This method could be utilised by landlords hoping to enact forfeiture proceedings on the basis of a technicality, despite rental arrears being the main cause for conflict.
3. Despite the aforementioned government initiatives, debt claim in court continues to be a tool used by landlords who wish to apply pressure on their tenants. This method places tenants in the firing line of a court judgement for the debt, which a landlord may seek to enforce when the protective measures are lifted.