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Coronavirus - Options on non-payment of rent for commercial landlords

Since the outbreak of the coronavirus pandemic, the government has made a number of measures available for commercial tenants to assist them at this difficult time.  Such measures include the temporary abolition of business rates, the deferment of VAT payment and help with employees’ wages. 

One thing which is not affected however is a tenant’s obligation to pay its rent and, despite the number of helpful measures granted by the government, tenants may still not be able to meet their rental obligations.

So what is the landlord’s position?

In the first instance, a tenant may approach its landlord to request a direct concession, such as a reduction, deferred rent, having a rent or service charge holiday or paying monthly

As a landlord, it is entirely within your discretion whether you agree to you rent concessions. Whilst you are entitled to take a hard line, you may consider that action you take now might help your tenant to survive this economic downturn meaning you are more likely to receive rent in the future, and avoid having vacant premises with uncertainty over prospects to re-let in the post-coronavirus environment.

If you do decide you are willing to agree a rent concession, then the arrangement should be properly documented.  We recommend you also read our article ‘Should you agree a rent concession?’

What happens if my tenant does not pay rent?

You may be able to take action to forfeit the lease.  This usually carries the largest threat to a tenant who wants to keep the lease.  (However, note that the proposed Coronavirus Act is expected to prohibit forfeiture action until July 2020.)  If you wish to preserve the right to forfeit until then, it is imperative that you do not inadvertently waive the right to forfeit the lease by doing anything which recognises the ongoing landlord/tenant relationship between the breach and the forfeiture.  This is a complex area upon which we can advise you.

If there is a rent deposit, you could consider a withdrawal of the unpaid rent from that. If there is a guarantor, it might be possible to seek payment directly from them. 

It might also be possible to seek payment from a former tenant, or a former tenant’s guarantor, for the non-payment of rent however relevant notices will need to be served. It might also be possible to seek direct payments of rent from any undertenant (i.e. the tenant of your tenant) by serving appropriate notices.

The CRAR procedure (commercial rent arrears recovery) can be instigated.  This essentially allows you to ‘seize’ tenant's goods on site and sell them in order to recover an equivalent value to the unpaid rent.

A tenant who sees little prospect of rescue of their business may be quite happy to agree a surrender of the lease with you.  This will, however, leave you with an empty property and no rental covenant, which may not be attractive to you in the current climate. 

If your tenant does not wish to surrender the lease, it may be possible to bring the lease to an end by serving a relevant notice on the tenant, depending upon the lease terms.  Again, it may not be attractive to you in the current climate. 

It might also be possible to issue a bankruptcy petition against an individual tenant or, if a corporate tenant, issue insolvency (winding up) proceedings.  Again however, this action, if successfully completed, would leave you with an empty property.

You should also consider whether interest is payable on the unpaid rent and whether the lease allows you to recover any of your legal or management fees associated with taking action.

Last, but by no means least, you should consider trying to reach an agreement with your tenant. For example, can you agree a deferment of the rent, perhaps at an interest rate to be agreed, or by taking charge over some assets pending payment?  All negotiations should be stated to be “without prejudice and subject to contract” and any agreement reached should be carefully documented. More information on this can be found in our article ‘Should you agree a rent concession?’  

It is recommended that before you take any action you seek advice as to your options.  Not all options will necessarily be available to you and each carries associated pros and cons which will need to be considered. Also, some actions can act to prohibit other actions so it is best to seek professional advice.  

If you would like to speak to one of our experts, you can speak to either Claire Bunton or Rachel McNulty on 01962 844333 or email contact@duttongregory.co.uk