Traditionally, Midsummer’s Day marks a time for festivities and optimism. But, as 24th June approaches, commercial landlords and tenants are unlikely to enjoy such sanguinity.
This article was first published by CoStar News on 5 June 2020 and can be seen here.
Although tenants have successfully negotiated rent concessions for the previous quarter, with COVID-19 continuing to harm business, many have since suffered shock falls in turnover. There are also concerns that landlords cannot afford to make further allowances and may instead consider taking action against defaulting tenants.
In an attempt to avoid “aggressive” landlord action, the Coronavirus Act 2020 was enacted in March to protect defaulting tenants from eviction for non-payment of rent and to stop landlords from sending in the bailiffs until 30th June. Pending any extension, defaulting tenants will become fair game very shortly after.
The British Property Federation warned that the crisis needs to be urgently addressed, and the Government has answered its call in the form of The Corporate Insolvency and Governance Bill, expected to come into force later this month. It will introduce a number of temporary and retrospective changes to insolvency law; these include restricting the use of, and voiding, statutory demands and winding-up petitions up to 30th September 2020, where the debt has been caused by COVID-19. Although this should give tenants more breathing space, it doesn’t prevent the issue of administration orders or other court proceedings for the recovery of rent.
Although, this would be checked by another temporary measure, proposed by the Bill and again available until 30th September: the introduction of a free-standing moratorium designed to give directors an initial period of 20 business days (extendable to a year) to rescue the company and provide a payment holiday from most pre-moratorium debts. Although rent itself will still be payable during the moratorium, it should at least give some flexibility and therefore a lifeline to viable businesses in difficulty by preventing creditor action.
Although the Bill is not yet law, it is already having an impact. On 2nd June, the High Court restrained a winding up petition for non-payment of rent simply on the basis that the Bill is likely to become law soon.
Yet, whilst these existing and proposed measures will help some tenants, rent will still fall due on 24th June and must be paid. At present, there are no proposals to assist landlords who default on their own financial covenants if rent is not collected. So, unless landlords and tenants resolve matters between themselves ahead of the next payday, 24th June is unlikely to bring ‘sweet dreams’ to either.
If you would like more information about the Corporate Insolvency & Governance Bill 2019-2021 and rent due on Midsummer’s/Quarter Day please get in touch with Tim (tim.carter@stevens-bolton.com) or Markus (markus.klempa@stevens-bolton.com), and if you would be interested in attending a Q&A webinar to find out more please contact us on events@stevens-bolton.com.
Tim Carter
Markus Klempa