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Commercial Rent Arrears in the wake of COVID-19 – A Guide For Landlords

5th January 2022

As a result of the COVID-19 pandemic and the restrictions imposed on a number of businesses preventing them from opening their premises, many tenants of commercial properties suffered a significant decrease in their ability to generate income making it difficult for them to meet their financial obligations, to include payment of their rent.

Whilst government guidance always encouraged tenants to make payment when they were able to do so, and to communicate with their landlords in relation to any arrears, often arrears continued to accrue and, with a moratorium in place preventing landlords from exercising their right to forfeiture for non-payment of rent until March 2022 and restrictions on use of the Commercial Rent Arrears Recovery process, the only available route for recovery of any arrears was a money claim through the Court.

Given the unprecedented nature of the COVID-19 pandemic, there has been some dispute as to the liability of tenants for the rent accrued as a result of it, however, three recent decisions of the High Court herald good news for Landlords as it is confirmed that rent arrears, whether caused by the pandemic or not, may be pursued by way of a Court claim with good prospects of success.

The first two cases, Commerz Real Investmentgesellschaft mbh v TFS Stores Ltd [2021] EWHC 863 (Ch) and Bank of New York Mellon (International) Ltd v Cine-UK Ltd [2021] EWHC 1013 (QB), establish that the tenant’s liability for rent continues notwithstanding any restrictions imposed as a result of the pandemic.

Further, in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd [2021] EWHC 2591 it was held that the tenant’s inability to use the leased premises for its permitted purpose did not suspend the requirement to pay rent and service charge nor did it amount to a failure of consideration, whereby the tenant argued that it had not received what it had bargained for pursuant to the lease. The Judge noted that it is a long-standing principle that a tenant’s inability to use their leased premises for its intended purpose is not a defence to a rent arrears claim although, as always, each case will turn upon its own facts and provisions of the leases.

However, in light of the decisions in these cases, it is now increasingly difficult for tenants to defend any claim against them for the recovery of rent arrears irrespective of whether such have accrued as result of the pandemic.

Although this is the current position, the government is currently in the process of considering new proposals for laws and a code of practice to be followed by landlords and tenants who are attempting to resolve disputes in relation to rent arrears which have accrued only as a result of the pandemic. The Commercial Rent (Coronavirus) Bill is anticipated to take effect from 25th March 2022 and will involve an arbitration scheme for either party to refer to in the event that an agreement cannot be reached where any decision made will be binding upon them. It is intended that the new legislation will make the process of dealing with arrears of this nature smoother and more efficient, although it does remove the option of court proceedings for landlords and therefore may not be an attractive solution for their purposes. It remains to be seen how effective and popular this will be in due course.

If you are the landlord of a commercial property and would like further advice in relation to recovering rent arrears accrued as a result of the pandemic, please contact Louise Palmer on 01543 267231 or email lpalmer@ansonssolicitors.com

 

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