Coronavirus and rent enforcement in England and Wales

Article 23 August 2021 Experience: Real estate

Forfeiture of commercial premises and CRAR

The Coronavirus Act 2020 contains express safeguards for business tenants restricting a landlord’s ability to forfeit a lease for non-payment of rent. An initial moratorium suspended a landlord’s power of re-entry or forfeiture on the basis of non-payment of rent and other sums due under the lease, whether failure to pay rent related to COVID-19 or not. This measure has been extended five times, most recently to 25 March 2022. However, a Policy Statement published by the UK Government on 4 August 2021 characterised 25 March 2022 as a ‘backstop’ which may be shortened if legislation is brought in earlier.

The extended protection from forfeiture automatically prolongs the restrictions against landlords enforcing Commercial Rent Arrears Recovery (CRAR). This is a method of debt recovery which allows a landlord to instruct enforcement agents to seize and sell goods owned by a tenant to satisfy rent arrears. The minimum total net unpaid rent that must be outstanding before CRAR can take place was increased: from 7 days’ net unpaid rent (prior to the pandemic) to 544 days’ rent. The August Policy Statement similarly introduces a 25 March 2022 backstop, after which restrictions on landlords’ use of CRAR will be dropped.

Corporate insolvency

Statutory demands are sometimes used to exert pressure on tenants to pay outstanding liabilities. The failure to satisfy a demand enables a landlord to commence court proceedings to put the company into liquidation. The threat of liquidation is often sufficient to persuade the tenant to pay.

The Corporate Insolvency and Governance Act 2020 (‘CIGA 2020’) suspends the use of a statutory demand for this purpose. Proceedings to liquidate a company cannot be commenced for failure to satisfy a statutory demand served between 1 March 2020 and 30 September 2021.
In addition, a creditor can only present a winding up petition before 30 September 2021 on the basis that a company cannot pay its debts as they fall due if they have reasonable grounds for believing that:

1. coronavirus has not had a financial effect on the company; or
2. the company would have been unable to pay its debts even if coronavirus had not had a financial effect on it.

In many cases, it will be difficult to establish that the company’s failure to pay its debts is not due to the pandemic, and so for practical purposes landlords will be unable to present a petition until after September 2021.

Residential possession proceedings

Since 29 August 2020, the notice period landlords are required to give residential tenants with statutory protection before commencing possession proceedings has been extended. The notice period will vary according to when notice was served. Landlords who served notice on tenants after 1 June 2021 must generally now give at least four months’ notice. There are limited exceptions, such as where a tenant has accrued rent arrears to the value of over 6 months’ rent.

Having suspended almost all possession proceedings in March 2020, the courts began considering cases again on 21 September 2020. The courts are prioritising the most serious cases such as where there are allegations of fraud, or alleged arrears equal to at least 12 months’ rent.

The government lifted measures protecting residential tenants from eviction on 31 May 2021. Accordingly, bailiffs may now serve eviction notices on residential tenants.