What are Commercial Property landlords’ rights around recouping rent arrears?

The Coronavirus pandemic has hit many sectors such as hospitality, beauty, and retail with savage force. Throughout 2020, attention has been focused mainly on the plight of tenants who have seen their customer footfall and/or turnover plummet. However, many landlords are also struggling to cover their own financial commitments due to tenants being unable to pay rent. Our solicitors regularly advise landlords who are treading a fine line between collecting rent to cover their liabilities and at the same time supporting tenants’ businesses to ensure investment properties remain occupied once the pandemic ends. 

If you and your team are preparing a strategy for collecting rent on the March quarter day, below are some answers to questions our commercial property solicitors are being asked by clients.

What are my legal rights regarding collecting rent from my commercial property tenants?

At present, commercial landlords are restricted regarding the legal actions they can take against a tenant who cannot or will not pay rent. Until 31 March 2021 landlords cannot evict commercial tenants for rent arrears or use the Commercial Rent Arrears Recovery (CRAR) procedure unless an amount of 366 days’ rent is owed. These restrictions have been in place since March 2020; however, when extending the restrictions in December 2020, the government made it clear that no further extensions would be announced:

Secretary of State for Housing Rt Hon Robert Jenrick MP said:

“I am extending protections from the threat of eviction for businesses unable to pay their rent until March 2021, taking the length of these measures to one year. This will help them recover from the impact of the pandemic and plan for the future.

“This support is for the businesses struggling the most during the pandemic, such as those in hospitality – however, those that are able to pay their rent should do so.

“We are witnessing a profound adjustment in commercial property. It is critical that landlords and tenants across the country use the coming months to reach agreements on rent wherever possible and enable viable businesses to continue to operate.”

Restrictions on insolvency measures including statutory demands and winding up petitions have also been extended until the end of March.

If I cannot evict a commercial tenant or take legal action for payment of rent arrears, what are my options?

In June 2020, the government published a code of practice for commercial landlords and tenants. The voluntary Code is designed to “support businesses to come together to negotiate affordable rental agreements. It builds upon the discussions already taking place by giving those tenants and landlords affected by the crisis the tools to come to a mutually beneficial agreement; ensuring that best practice becomes common practice.”

The Code asks both landlords and tenants to be flexible, act in good faith, and support the long-term viability of businesses and the jobs they provide. For example, tenants who are seeking concessions must be transparent as to why such concessions are required and provide relevant financial information to the landlord if requested. In turn, landlords should provide concessions where they can, considering their own fiduciary duties and financial commitments. If a landlord refuses to allow requested concessions, they/it should give reasons for doing so. 

In another example of mutual support, landlords can elect to reduce service charges during lockdowns when a premise is not occupied. And in return, tenants can agree to pay additional service costs to fund Coronavirus-related health and safety requirements that landlords are required to comply with. 

Specialist Landlord and Tenant Solicitors in North London

Both landlords and tenants are being asked to ‘share the pain’ during the pandemic and cooperation will be needed for many months to come. A commercial property solicitor can advise you on your rights as a landlord under the existing commercial lease agreement. They can also assist you with re-negotiating terms per the principles of the government’s Code of Practice.

For further advice please get in touch with one of our Commercial property solicitors by email or on 020 8349 0321.