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The Covid-19 Pandemic has drastically affected the economy. It has heralded new legislation that has changed the landscape in which landlord and tenant relationships in the commercial and residential spheres must now operate. Further legislation is on the horizon for a new scheme for dealing with rent arrears as detailed in our article here.
In the context of there being significant restrictions on a landlord to enforce payment of rent arrears because of the Coronavirus Act 2020 and the practical delays in issuing proceedings, getting cases listed for hearings and in enforcing judgements, how can a landlord improve its position to have rent arrears paid?
Assigning a lease
If a tenant whose business is struggling seeks a licence to assign from the landlord to assign the remaining part of its lease to an assignee, can a landlord refuse to give that licence to assign until all rent arrears have been cleared?
The answer to this question will depend upon the terms of the lease, the extent of the rent arrears and all the facts and circumstances of how the rent arrears arose. Whether or not a landlord has unreasonably refused consent to a licence to assign depends upon all the circumstances. Clearly, where a tenant is in breach of its covenant to pay rent, this may be a situation where it is reasonable to refuse the licence to assign. However, if the tenant is struggling to pay the rent and where there is a ban on forfeiture proceedings being brought for rent arrears by any landlord until 25 May 2022, should the landlord consider a licence to assign anyway?
Potentially, a request to assign the lease by the current tenant may give the landlord an opportunity to negotiate a settlement of the accrued rent arrears. It also presents an opportunity for the Landlord of having a new tenant who can pay the rent and so may improve the Landlord's risk of incurring further rent arrears. It is still a situation which would need careful consideration. An independent guarantor for the incoming tenant is still of great value. The conditions imposed by the Landlord of agreeing to a licence to assign could still be challenged and if found to be unreasonable, could be unenforceable. But we have seen creative proposals being made by both our Landlord and Tenant clients in these new and challenging times.
Options for rent collection
What are the options for the Landlord to collect rent arrears from the outgoing tenant where an assignment is sought? The landlord could insist upon a proportion of the rent arrears being paid as a condition of agreeing to a licence to assign. If the outgoing tenant can afford to, it would be preferable to have this payment made simultaneously with the licence to assign. Realistically, this may not be financially possible for a tenant whose business has been affected by the Covid-19 Pandemic.
Experienced commercial landlords will be aware of the risks of waiving rights to forfeit a lease. Prior to the implementation of the Coronavirus Act 2020, any action by a landlord, where it had the right to forfeit a lease would be lost if the Landlord consented to a licence to assign a lease. However, there is specific provision within the Coronavirus Act 2020 that states that no conduct on the part of the landlord will be regarded as waiving a right to forfeit the lease until after 25 March 2022 unless the landlord gives an express waiver in writing. This does open new territory for the Landlord to explore.
Post COVID rules
Commercial Rent Arrears Recovery (CRAR)
Forfeiture for Breach of the Lease other than Rent Arrears
How Pinney Talfourd can help
This article was written by Lisa Eastwood, Senior Associate in our Residential Property Litigation Team. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of August 2021.