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The Coronavirus Act 2020 (“the Act”) placed a moratorium on the forfeiture of commercial leases with a term of more than 6 months. The Act also prevents commercial landlords from utilising the special procedures under Commercial Rent Arrears Recovery (“CRAR”) regime which in normal circumstances enable certificated bailiffs/enforcement agents to recover unpaid rent by removing and selling tenants’ goods (formerly known as distraint) without a Court judgement.
The moratorium has been extended several times already and has now been extended again from 31 March 2021 to 30 June 2021.
In normal circumstances, commercial tenants who do not pay rent in accordance with the terms of their commercial lease are under immediate risk of forfeiture by their landlord. Most leases contain forfeiture re-entry clauses which allow landlords to bring leases to an end if any rent as defined by the leases are unpaid for a certain period of time (usually 14 – 28 days). Landlords forfeit leases by re-entering properties and changing locks so as to exclude their tenants or serving court proceedings for possession of the properties. Often no advance warning is necessary and therefore the advice to tenants has always been to prioritise payment of commercial rent.
The moratorium now prevents landlords from being able to do this until at least 30 June 2021 and this could be extended again.
The moratorium does not however prevent landlords from bringing debt claims in the county court for judgments which can then be enforced against tenants if unpaid. Insolvency proceedings can also be brought against individual tenants by serving statutory demands and subsequently petitioning for their bankruptcy. However, the Act prevents winding up petitions from being presented against company tenants for the time being.
Also, there are no restrictions on legal action being taken against guarantors or former tenants under Authorised Guarantee Agreements (“AGA’s”). This can put significant pressure on tenants to pay rent in order to avoid enforcement against third party guarantors. There are strict statutory time limits and notice requirements for claims under AGA’s and most contractual guarantees have notice requirements, so it is very important not to overlook them during the moratorium period. Even if landlords do not intend to take immediate enforcement action against guarantors, notices of arrears must still be given within the prescribed time limits to safeguard the landlord’s position under the guarantee.
If you would like to have a discussion about any of the above, or for further information please get in touch with your regular point of contact at Band Hatton Button, or any member of our Commercial Property or Commercial Litigation teams.