17 September 2020

Restrictions on forfeiture of business tenancies and CRAR extended to 31 December 2020

The Government has announced that the current legislation which prevent landlords from forfeiting commercial leases, or levying execution on the tenant's goods by way of CRAR to recover outstanding rent, will be extended from 30 September 2020 until 31 December 2020 to provide further protection for tenants who have not paid their rents or other sums due under their leases.

These restrictions had already been extended once before and this further extension was strongly opposed by landlords who feel that this is allowing tenants who can afford to pay to continue not to pay. However, the government's priority is to protect vulnerable businesses, and it hopes that retailers and restaurants and the like can make some recovery over the autumn and Christmas period if protected from eviction or the use of CRAR.

The changes means that between now and 31 December 2020, CRAR may only be exercised:

  • On or before 24 December 2020, if at least 276 days' rent (i.e. 3 quarter's rent) is outstanding when the notice is given and when the goods are taken control of for this first time.
  • On or after 25 December 2020, if at least 366 days' rent (i.e. a year's rent) is outstanding when the notice is given and when the goods are taken control of for this first time.

The government's latest press release does not comment on whether the restriction on using insolvency proceedings to recover sums due will also be extended, but this seems highly likely to follow suit.

The government continues to place faith in landlords and tenants reaching agreement for deferrals or rent reductions by following the guidance in the Code of Practice governing commercial property relationships ("the Code") that was introduced in June 2020. The Code seeks to promote open and constructive discussions between the parties where the tenant cannot afford to pay sums due. Where payment is not possible, a number of possible compromises are suggested. But many tenants are unwilling to engage fully with the Code and, in particular, to disclose their true financial position.

Landlords do remain able to pursue debt claims through the Courts in respect of unpaid rent and other sums. Their right to do so has been unaffected by the current restrictions, and it is the only remaining option available to landlords wishing to recover payment from tenants who can pay, but who refuse to do so. If nothing else, a Judgment secures interest at 8% per annum on the sum due and can still be enforced in various ways.

Charlotte Ross is a Senior Associate in the Property Litigation team.

Disclaimer

The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.

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