FAQ: Real Estate

1. Can my tenant refuse to pay rent under the lease?

The simple answer is no. If the tenant is genuinely struggling to meet its rent liabilities the tenant might approach the Landlord to request a ‘rent holiday’.

Business landlords and tenants are encouraged to follow the Code of Practice for Commercial Property Relationships whilst the repercussions of the Covid-19 pandemic continue. The Code of Practice does encourage tenants to pay rent where they are able to. There is nothing preventing commercial Landlords from issuing Court proceedings for arrears of rent.

2. What is the Commercial Rent Arrears Recovery (“CRAR”) process and are there restrictions in place due to COVID-19?

This is the process allowing Landlords to instruct an enforcement agent to take control of a tenant’s goods and sell them, or to serve a notice on a sub-tenant to pay its rent to the superior landlord in order to realise an amount to cover the rent arrears.

In order for a Landlord to exercise CRARS before 25 March 2021, a minimum of 554 days rent must be owed by the tenant.

3. Are there any restrictions on Landlords making claims against guarantors or making withdrawals from rent deposits?

No.

4. Can my tenant terminate the Lease early as a result of COVID-19?

While tenants may try to claim that due to Covid-19, their lease has been frustrated, it is unlikely they would be successful. Historically, courts have taken a very restricted view on frustration – a claim by a tenant that Brexit frustrated their lease was rejected by the courts last year.

Unlike the majority of commercial contracts, force majeure clauses are extremely rare in commercial leases (although this may now change), and so it is unlikely that tenants would be able to use this as a way to end a lease.  Having said that, a tenant who does have a lease containing such a clause should seek advice. Depending on the wording of the particular clause it may be possible to argue that the lease is at an end.

The current situation may result in a host of new CVAs or in tenants becoming insolvent. Financial difficulties such as these could trigger the landlord’s ability to end the lease early and may lead to conversations where a short term rent suspension is agreed, despite not being provided for in the lease.

5. Can my Landlord forfeit my Lease?

Landlords are currently not permitted to forfeit a lease for non-payment of rent before 25 March 2022. However, they are permitted to forfeit for any other reason allowed under the terms of the lease.

6. Are there restrictions on Insolvency proceedings as a result of COVID-19?

Considerable restrictions were introduced by the Corporate Insolvency and Governance Act 2020. The Government has announced the restrictions will be extended to 30 September 2021

The restrictions prevent the presentation of Winding Up petitions except where the company would be deemed insolvent notwithstanding the impact of COVID-19.

The Government has also introduced a new standalone moratorium for companies experiencing financial difficulty. The initial moratorium period is 20 workings days without creditor consent or up to one year with creditor consent. During the moratorium, permission of the court is required to forfeit a lease by peaceable re-entry; enforce any security; exercise CRAR and begin or continue legal proceedings against a company.

7. Can I enforce a Court Judgment for a sum of money owed?

Judgments can be enforced by charging orders over properties in the usual way.

Warrants to seize goods are subject to practical delays due to court delays and Covid-safe working practices by enforcement officers.

8. What can I do if squatters are in my premises?

There is a risk that with many commercial units being closed, squatters may use this opportunity to occupy commercial premises. Occupying commercial premises is not a criminal offence, and landlords or tenants of commercial premises will usually require an order from the court to obtain possession and evict the squatters.

The moratorium on possession proceedings and enforcement in place does not include actions against squatters.

9. How might I protect my premises

Tenants of commercial units must ensure that their units are secure, to prevent them from being occupied by squatters. It would be wise for landlords to be proactive in this respect too. Whilst it may be the responsibility of a tenant to ensure its premises are secure, a landlord will not want squatters to access premises which it has let or parts of a property, or an estate, which remain the landlord’s responsibility, such as a common parts or unlet units.

Landlords and tenants should:

• Ensure all alarms are set;
• Ensure all windows and doors are securely locked and, if appropriate, put additional locks in place;
• Consider whether windows of empty premises should be are boarded up;
• Check the premises for signs of forced entry;
• Carry out repair works to hoarding, fire escapes and other doors which squatters  may be able to use to gain access to a building;

Landlords and tenants should check their insurance policies in respect of securing their premises to ensure the obligations contained in their policies are being complied with.

Click here to view our Commercial Tenancies Q&A.