On 23rd March the Government announced that as a result of the Coronavirus Act 2020 “no business will be forced out of their premises if they miss a payment in the next 3 months.”
The truth is a little more complicated: the Act provides only partial protection to tenants from the immediate consequences of non-payment of rent, and even then operates only to suspend not waive the landlords’ rights. Unless the parties can cooperate over an exit strategy, the deferred liabilities and pent up resentments are likely to lead to an explosion of litigation.
S. 82 prevents forfeiture for non-payment of rent by business tenants, whether or not the tenancy is excluded from the 1954 Act, prevents non-payment of rent during the relevant period from counting as persistent failure to pay rent, and stipulates that no possession order on any ground can require business tenants to give up possession during the relevant period (until 30th June unless extended).
Meanwhile Practice Direction 51Z stays possession claims under CPR 55 until 30th June, including proceedings relating to commercial mortgages , contracted out tenancies, tenancies at will and trespassers. It applies to existing and new claims and prevents all procedural steps, not just the making of possession orders, with very limited exceptions.
The combined effect of the Act and the practice direction is to halt nearly all possession proceedings. However landlords wishing to compel payment of rent remain free to take any steps outside possession proceedings, including obtaining or enforcing money judgments, Commercial Rent Arrears Recovery or petitioning for the winding up, administration or bankruptcy of tenants.
In practical terms a tenant may have no choice but to make a payment when faced with a winding up petition: there is no stay on petitions; a winding up order is as fatal as repossession; and even the presentation of the petition may have the effect of freezing the tenant’s bank account.
Ukactive has recently called for the Government to restrict landlords from using these tactics to coerce gyms and leisure centres into paying rent. This illustrates a policy dilemma: after all, Landlords will counter, if tenants can pay, why shouldn’t they? In this atmosphere tensions are likely to mount.
Even if landlords hold off from taking steps during the 3 month suspension period, the question remains -what will happen at the end of the period? Tenants who have experienced a substantial drop in income are unlikely to have the accrued rent handy on July 1st, and landlords will be anxious to redress their own recent drop in income. The pressure in the litigation pipeline appears ominous.
The sensible approach would be for both parties to seek to formulate and ideally to agree an exit strategy during the 3 month moratorium. Landlords will wish to ensure that they get at least something, and tenants will hope that they can spend the post lockdown period rebuilding their business not instructing lawyers. It remains to be seen whether litigators or restucturing experts will inherit the new earth.
Adam Deacock, barrister at Radcliffe Chambers