Further changes to landlords’ remedies for recovering commercial rent arrears: An update

Two of the classic self-help remedies open to landlords for recovering commercial rent arrears have traditionally been forfeiture and Commercial Rent Arrears Recovery (CRAR), but both of these have been restricted as a result of Government measures to support tenants during the coronavirus crisis. There is also a proposed ban on winding-up petitions for coronavirus-related debts, which is already being applied by the courts.

Amended CRAR Regulations

The Regulations changing the use of CRAR originally came into force on 24 April and apply to enforcement action taken under that process.

The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 provided three key changes (although only the first is really headline grabbing):

• An increase of the threshold before CRAR can be exercised in the first place – from 7 days’ rent arrears to 90 days, for enforcement notices given between 25 April and 30 June 2020;
• An extension, in certain circumstances, to the date by which an enforcement agent must have taken control of goods if the notice of enforcement is not to lapse; and
• An extension of the 2 year enforcement certificate that enforcement agents must hold in order to act in that capacity (again, in certain circumstances).

However, there are further amendments which apply from the June quarter day (being the day on which the amendments are expected to take effect). The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (No. 2) Regulations 2020 provide:-

• The threshold before CRAR can be exercised has increased from 90 days to 189 days’ rent arrears for enforcement notices given between 24 June and 30 September 2020;
• The restrictions on taking control of goods at premises which include a dwelling-house and goods which are found on the highway (and on the premises which an enforcement agent may not enter, re-enter or remain)  are extended both in their remit and time period (such that those restrictions will now not expire until 23 August 2020); and
• There is a further extension to the validity period of the enforcement certificate that enforcement agents must hold.

Proposed changes to insolvency

The Corporate Insolvency and Governance Bill is reaching the conclusion of its journey through Parliament. This contains temporary restrictions on statutory demands and winding up petitions, with retrospective effect.   

The Government announced on 23 April that it intended to:

• ban the use of statutory demands between 1 March – 30 June 2020; and
• restrict winding-up petitions between 27 April – 30 June 2020. 

The provisions of the Bill prevent the presentation of winding up petitions during the “relevant period” (27 April to 30 June but now extended to 30 September 2020) unless the creditor has reasonable grounds for believing that coronavirus has not had a financial effect on the company or that the company would have become unable to pay its debts even if the coronavirus had not had a financial effect on the company.  As currently drafted, the Bill provides that coronavirus has a “financial effect” on a debtor company if the debtor’s financial position worsens as a result of, or for reasons relating to, coronavirus.

The Government announced on 19 June 2020 that there will be a further amendment to the Bill to extend these restrictions on winding-up petitions until 30 September 2020 (in line with the forfeiture moratorium affecting business tenancies – see below). 

It is clear that the courts already have one eye on the legislation and are making decisions with the Bill in mind.  Most recently in Re A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406, the High Court granted an injunction restraining the presentation of a winding-up petition against a retail company which closed its premises due to Government restrictions on the basis of the temporary measures contained within the Bill. The Court had a “high degree of confidence” that the Bill would be enacted in more or less its current form. The Bill has prompted a lot of Parliamentary debate and the final Act is awaited in the new few weeks.

Update on forfeiture moratorium

Ever since the Coronavirus Act 2020 came into force on 25 March, a moratorium has been in place preventing the forfeiture of commercial leases for unpaid rent – currently due to expire on 30 June 2020. This has now been extended to 30 September 2020 - read our article here.

This does not affect the ability of landlords to take steps as a prelude to forfeiture in connection with other breaches of covenant, e.g. subletting, disrepair etc. Section 146 Notices in respect of such breaches remain a valid approach in the enforcement armoury open to landlords.  However, the practical impact of such an approach is severely limited by amendments to the Civil Procedure Rules which have extended the stay on possession proceedings until 23 August 2020 except in relation to:

• Possession claims against trespassers within the meaning of CPR 55.6;
• Applications for an interim possession order under Section III of CPR Part 55;
• The issue of possession claims by the court – claims should be issued but will then be stayed;
• Applications for case management directions which are agreed by all the parties (so that proceedings can resume effectively once the stay has expired)

The restrictions detailed above have been removed. Please refer to our latest guidance in our March 2022 Quarter Day page which can be found here.

For more information, please contact Emma Humphreys or Richard Flenley or your usual Charles Russell Speechlys contact.