As the UK government extends its moratorium on evictions of residential and commercial tenants until the end of September, many landlords are becoming increasingly anxious about their ability to recover debts.
Contrary to some initial misunderstanding, the Coronavirus Act 2020, which came into force on 25 March 2020, does not waive or defer a tenant’s obligation to pay rent under a commercial lease.
Section 82 of the act implements a moratorium on forfeiting leases, which initially lasted for three months, until 25 June 2020 for residential tenants and 30 June for commercial tenants. This has now been extended to 23 August for residential leases and 30 September for commercial leases, during which landlords may not forfeit commercial leases for non-payment of rent.
While the government’s priority understandably remains the protection of residential and business occupiers who have been unable to pay rent because of the Covid-19 lockdown, the extension of the moratorium is causing consternation among landlords, many of which have their own financial obligations and are struggling to cope with the squeeze on their incomes.
The restrictions on forfeiting leases differ slightly for residential and commercial tenancies and while strict adherence to the rules is strongly recommended, those seeking to recover debts owed on rented properties can take some proactive measures to alleviate their circumstances.
Residential tenancies – key points
A landlord must give tenants three months’ notice for all notices served between 26 March 2020 and 30 September 2020 before they can reclaim vacant possession of a property by court proceedings. These dates are subject to review, however, and may be extended.
The Coronavirus Act changes notice periods for assured, assured shorthold, demoted, flexible, introductory, protected secure and statutory tenancies to at least three months.
Section 8 notices, seeking possession due to rent arrears under grounds 8, 10 and 11 of S.8 must give at least three months’ notice before proceedings commence.
There is a general suspension of enforcement of all possession orders from 27 March 2020 to (currently) 23 August 2020.
The three-month mortgage payment holiday has been extended to cover buy-to-let mortgages.
The Financial Conduct Authority has announced that all mortgage lenders are banned from pursuing repossessions until 31 October 2020.
Residential tenancies – limitations
The changes to residential tenancies implemented by the Coronavirus Act do not invalidate any existing notices of possession served before 25 March 2020.
The act does not invalidate any existing possession orders.
The provisions do not apply to contractual tenancies, licences or tenancies granted in the course of employment.
There is no restriction in relation to claims against squatters/trespassers.
The stay imposed by the act does not prevent the issue of claims, it simply stays them.
Commercial tenancies – key points
Landlords will be unable to forfeit a lease and commence possession proceedings for failure to pay rent or other sums, including service charges and insurance rent between 26 March 2020 and (currently) 30 September 2020.
The act applies to tenancies protected by the Landlord and Tenant Act 1954 and to leases which have been ”contracted out” of the protection of the 1954 act. The legislation does not apply to short leases – i.e., leases for less than six months.
The act defines rent as ”any sums a tenant is liable to pay under a relevant business tenancy”. This includes all basic rent and other payments payable in accordance with the terms of the lease such as service charge, insurance and administration charges.
There is a conditional ban on using insolvency procedures against companies unable to pay debts due to Covid-19. This includes a temporary ban on presenting winding-up petitions from 27 April through to 30 September 2020, where a company cannot pay rent due to impact of the pandemic and associated infection control measures.
Commercial tenancies – limitations
The Coronavirus Act does not waive or even suspend the tenant’s liability to pay rent under a lease. Tenants should continue to make payment (if possible) – the act simply prohibits forfeiture for a period of time.
Landlords will be able to forfeit leases for both unpaid sums during the moratorium period and for any unpaid sums that become due after it is lifted (this includes any accrued interest).
The act only prevents landlords from forfeiting leases for rent arrears; leases can still be forfeited where a tenant breaches other covenants contained in the lease, such as tenants duties to maintain fixtures and fittings etc.
Unlike the rules for residential tenancies, commercial lease provisions will apply to existing proceedings that have commenced before the moratorium period in relation to rent arrears. No orders for possession will be granted by the court before the end of the period.
Other remedies for the recovery of rent such as pursuing guarantors (including any liable under Authorised Guarantee Agreements) and withdrawing from a rent deposit are still available to landlords.
One additional point to note is that landlords may be incurring service charge outlays during the moratorium period. In these circumstances, claims to recover service charges can still be issued and judgments obtained
What are the courts doing?
The courts remain open and claims are being processed in the normal fashion.
Many courts have been adjourning all listed possession hearings. Others are adjourning and relisting hearings with a view to conducting these by telephone – as of early July, there is no standard practice in place.
Courts are now adjusting and utilising technology to ensure hearings continue to take place.
What landlords can do
While it is judicious to remain mindful of the challenges many tenants will be facing due to the Covid-19 lockdown, landlords should not be discouraged from continuing to exercise pre-action obligations they would usually carry out.
Doing this puts a landlord one step ahead and at the front of a potentially long list of creditors once debts can be pursued. A landlord can still issue an appropriate notice for possession and start the process of eviction, once the moratorium has expired.
Landlords should maintain a dialogue with debtors working with them to find suitable and amicable repayment solutions.
Both landlords and tenants will likely be encountering financial difficulties, so it is vital to keep lines of communication open.
Working together during this time helps build and continue business relationships in the future. Doing nothing may be detrimental to a landlord’s business.
Consider alternative payment arrangements
Where appropriate, landlords may seek to agree revised payment dates or payment plans with tenants.
It is important to monitor and formally document any agreement to prevent any ambiguity and future disagreement.
Agreeing on variations to payment terms during this difficult period encourages debtors to return to the usual repayment arrangements once the economy stabilises.
Seek legal advice
Businesses of all sizes are seeking to recover debts as a priority to maintain healthy cash flow for the uncertain times ahead.
Obtaining legal advice and taking a proactive approach now could prevent expensive, time-consuming litigation in the future.
Hopefully, the difficult financial situation caused by Covid-19 will soon start to be alleviated, but, in the meantime, knowing what practical options are available and applying the right debt recovery methods at the right time is more important than ever.