Covid and Commercial Leases: Where Are We Now?

Forfeiture

Since the introduction of the Coronavirus Act in March, landlords have been prevented from forfeiting commercial leases on grounds of non-payment of rent. Initially running to 30 June, this protection was subsequently extended to 30 September but will now be pushed out again, to 31 December 2020.

This is intended to allow tenants greater time to recover from the cashflow impact of the lockdown, but will be of grave concern to landlords – many of whom will have their own financial commitments, but with no corresponding protections against enforcement by their lenders.

Commercial Rent Arrears Recovery (“CRAR”)

Whilst not commanding the headlines in quite the same way as the laws on forfeiture, another remedy that has been drastically altered by the Covid legislation is that of CRAR (equivalent to the historic remedy of distress by bailiffs).

Whereas in pre-Covid times a landlord could avail itself of CRAR provided the tenant owed at least seven days’ worth of rent, emergency legislation introduced earlier in the year extended this to 189 days – meaning that CRAR has remained an option only where tenants owe both pre- and post-Covid arrears.

However, with effect from 29 September, this threshold will be extended again, initially to 276 days’ worth of rent (until the December quarter day) and then to 366 days (from 25 December onwards). The effect of this will be to keep CRAR available only where a tenant owes arrears from before the March lockdown.

Even in the context of Covid, this is an extraordinary period – more than a full calendar year – and serves as a stark demonstration of just how severe the cliff-edge for tenants may be once this suite of protections is eventually lifted.

Winding up petitions

The effective ban on the use of statutory demands and winding up petitions against corporate tenants was introduced not as part of the Coronavirus Act, but under the Corporate Insolvency and Governance Act which came into force in June. As a result, it does not necessarily follow that the restrictions on insolvency proceedings – also currently due to end on 30 September – will automatically be extended on the same basis. Indeed, at the time of writing there has been no formal announcement on the subject.

However, reports emerging in recent days suggest that a commensurate extension is “overwhelmingly likely”, and that an announcement to that effect is expected imminently from Government ministers.

Rule of six

The much-quoted “rule of six”, which was launched by the Government this month to limit the size of social gatherings, has been written into law for anyone operating a business in the hospitality sector. The relevant Regulations cover not only pubs, restaurants and cafes, but – crucially – any business that provides food or drink for consumption on its premises.

As of 18 September, those businesses must not accept bookings for groups of more than six, or allow groups of more than six to enter the premises. Space of at least two meters must be maintained between tables – which may be reduced to one meter if other measures, such as protective screens, are put in place – and individual groups may not mingle if their total number would be more than six.

In addition, hospitality businesses must log details for all customers, staff and visitors, and from 24 September must display official “QR code” posters for the NHS Test and Trace service.

Local authorities will enforce the new Regulations, with fines starting at £1,000 and rising to £4,000 for venues found to be repeatedly breaching their duties.

Further advice

The economic, legal, and practical challenges presented by the Covid-19 pandemic cannot be overstated. It is plain that leisure businesses are now expected to contribute to the social management of the virus, whilst landlords may feel that the financial buck has stopped very firmly with them. Add to the mix a constantly-shifting legal landscape – and the looming prospect of a second national lockdown – and it becomes clear that there has never been a more critical time for businesses to seek informed advice on weathering the storm. For more information, contact the author below or visit our Covid-19 hub.

(Image via Liam Bell)