New COVID-19 measures to ease pressure on beleaguered tenants
- New measures to protect tenants against aggressive landlords during the COVID-19 pandemic
- Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided and changes to be made to the use of Commercial Rent Arrears Recovery, expanding measures already introduced under the Coronavirus Act
- Government asks landlords and investors to work with tenants unable to pay during COVID-19 pandemic.
Tenants already under pressure will be safeguarded against aggressive rent collection and asked to pay what they can during the COVID-19 pandemic.
Many landlords and tenants are already working together to reach agreements on rent liabilities, however some landlords have been using aggressive debt recovery tactics.
To stop this happening, the Government will put in place a short term prohibition on the use of statutory demands and winding up orders where a company cannot pay their bills due to the COVID-19 pandemic in an effort to prevent further misery for businesses.
In addition, the Government is introducing further legislation to provide tenants with a relief from paying rents by preventing landlords using Commercial Rent Arrears Recovery (CRAR).
These latest measures will offer further protection to tenants and save jobs by helping tenants to avoid permanent closure during COVID-19.
However, the Government also acknowledged the concerns of many landlords by asking those tenants who can afford it to pay rent or what they can as many landlords are feeling the strain too.
Business Secretary, Alok Sharma, said:
"In this exceptional time for the UK, it is vital that we ensure businesses are kept afloat so that they can continue to provide the jobs our economy needs beyond the coronavirus pandemic.
"Our unprecedented package of support can help commercial landlords, including through the recent expansion of the Coronavirus business Interruption Loans Scheme.
"I know that like all businesses they are under pressure, but I would urge them to show forbearance to their tenants. I am also taking steps to ensure the minority of landlords using aggressive tactics to collect their rents can no longer do so while the Covid-19 emergency continues."
Communities Secretary, Robert Jenrick, said:
"During this period of significant disruption, we are doing everything we can to ensure that commercial tenants are as well placed as possible to get back to business from the pandemic.
"We understand that landlords are facing their own very serious pressures and are concerned about their position with lenders. We are working with banks and investors to seek ways to address these issues and guide the whole sector through the pandemic."
Chief Executive of the British Retail Consortium, Helen Dickinson OBE, said:
"Rents are a huge burden for retailers that must be paid even where shops are closed. We have raised this problem with Government and today’s announcement protects firms who – during these extraordinary times – are unable to meet their rent obligations.
"We thank Alok Sharma for his swift action, which will give retailers some vital relief and help safeguard millions of jobs all across the country. We look forward to the finer details, however it is clear Government is listening and willing to act."
Chief Executive of UK Hospitality, Kate Nicholls, said:
"This is a very helpful and pragmatic response from the Secretary of State and will give hospitality businesses some very valuable breathing room.
"Many businesses in our sector have no revenue whatsoever coming in, so paying rents has been out of the question for some. This extra space will allow businesses to survive and to find a way to work with landlords. If social distancing measures are to be in place for some time, as we now believe they will, this measure may need to be extended to ensure that businesses can survive."
The Financial Conduct Authority, the Financial Reporting Council and the Prudential Regulatory Authority have also issued a joint statement encouraging investors and lenders to take into account the issues arising directly from the COVID-19 pandemic in responding to potential breaches of covenants.
These latest steps expand an earlier package of measures including:
- an initial 3 month moratorium on forfeiture for commercial tenants
- the Coronavirus Job Retention Scheme under which employers can apply for a government grant of 80% of workers' salaries up to £2,500 a month
- the deferral of the next quarter of VAT payments for businesses
- Government backed and guaranteed loans to support businesses
- the business rates holiday for businesses across the UK, and
- small business and grants and grants for retail, hospitality and leisure.
However, a few words of caution:
- Any winding-up petition that claims that the company is unable to pay its debts must first be reviewed by the court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the company's inability to pay is the result of COVID-19. It is not clear how courts will deal with this.
- The initial legislation preventing landlords using commercial rent arrears recovery (CRAR) will not help those tenants who owe 90 days or more of rent.
For some tenants these latest measures will not go far enough.
What is clear in these uncertain times is that collaboration is key. Those landlords and tenants who open and maintain a dialogue to find solutions to the problems presented by COVID-19 will be well placed to navigate these unchartered waters.