Just over two years since it started, the moratorium on landlord remedies to effect CRAR (commercial rent arrears recovery) and forfeiture of lease has ended with effect from 25th March 2022.
This will undoubtedly come as a relief to many landlords who have tenants in arrears or need to retake possession of their property.
However, the Commercial Rent (Coronavirus) Act, which came into force on 24th March 2022, will have an impact on both CRAR and forfeiture, should the rent arrears come under the criteria for protected rent arrears, due to requirements on the tenant to fully or partially close under Coronavirus regulations
CRAR – an overview
If the rent is not paid by the due date, the landlord may recover the arrears using CRAR which was introduced in April 2014 under the Tribunals Courts and Enforcement Act 2007, Part 3.
CRAR does not require a court order. It may only be used for the recovery of rent (and VAT) in purely commercial premises. It cannot be used to recover any other charges due, such as service charges or insurance.
There must be a written rental agreement or lease in place to use CRAR, and the lease may not have been terminated.
Forfeiture of lease – an overview
When a landlord wishes to regain possession of commercial premises prior to the expiry of the lease, he can forfeit – or terminate – the lease.
The breach of the terms by the tenant must be due to non-payment of rent (other breaches require that the landlord give the tenant time to remedy the breach). There must also be a clause within the terms of the lease which permits forfeiture.
Forfeiture entails the peaceful re-entry to the unoccupied property by a certificated enforcement agent, normally assisted by a locksmith.
Once they have secured access to the premises, the locks will be changed and the tenants’, and any sub-tenants’, rights to the property will end.
Commercial Rent (Coronavirus) Act
Whilst the process of CRAR and forfeiture of lease remain unchanged, there is new legislation, the Commercial Rent (Coronavirus) Act, which came into force on 24th March 2022, which will continue to impose restrictions on some enforcement action.
This is with regards to “protected rent arrears” and the legislation covers CRAR, forfeiture and winding up petitions.
Protected rent arrears
These relate to a business tenancy, as defined by Part II of the Landlord and Tenant Act 1954, where the business and/or premises were required to fully or partially close under Coronavirus regulations. It is immaterial if some limited activities were permitted despite the obligation to close.
To be protected, the arrears must relate to the “relevant period” which is beginning at or after 2pm on 21st March 2020 and ending at or before 11:55pm on 18th July 2021 (in England) or 6am on 7th August 2021 (in Wales).
The protected arrears relate to rent, service charges, including repairs, maintenance, management costs and insurance, as well as interest on the unpaid amount.
Relief from payment can mean one or more of:
- Writing off the whole or part of the debt
- Giving time to pay, including via instalments
- Reducing the interest on all or part of the debt
Where the arrears fall under the criteria for protected rent arrears, the only option available to the landlord and tenant is to undertake arbitration, using a Government-approved arbitration body.
The arbitrator’s guiding principles will be preserving the viability of the tenant’s business and the landlord’s solvency.
During the period which begins the day the Act was passed and ends either when arbitration has concluded or when the six months arbitration application period has passed, the landlord is prohibited from using these remedies:
- Making a debt claim in civil proceedings
- Using the commercial rent arrears recovery power (CRAR) and the protected debt is to be disregarded when calculating the net unpaid rent for CRAR
- Give notice of enforcement in relation to the protected debt
- Enforcing a right of re-entry or forfeiture
- Using a tenant’s deposit
If payment had been lawfully taken out of the tenant’s deposit before the moratorium period, and that rent owing is deemed to be protected, the debt will be deemed to be unpaid protected rent and the tenant is not obliged to top up the deposit during the period.
Any debt claims for protected rent arrears, including court judgments or a bankruptcy petition based on a statutory demand, issued between 10th November and when the Act came into force will be stayed. Landlords will not be able to issue debt claims for these arrears until either the end of the arbitration application period or the arbitration process.
Arbitration is, however, not an option should the tenant be subject to:
- A company voluntary arrangement which relates to any protected rent debt that has been approved under section 4 of the Insolvency Act 1986
- An individual voluntary arrangement which relates to any protected rent debt that has been approved under section 258 of that Act
- A compromise or arrangement which relates to any protected rent debt that has been sanctioned under section 899 or 901F of the Companies Act 2006
What if the tenant defaults?
If the tenant defaults on the payments needed in the award, the arbitration award can be used as the basis for enforcement. The Bill has been drafted with the aim of enabling the landlord to enforce any default under the award by the tenant in the same way as a default on rent under the lease.
It will be for the landlord to decide what method of enforcement to use in respect of the default. However, one option would be to seek the leave of the court to enforce the award in the same manner as a judgment or order of the court (under section 66 of the Arbitration Act 1996).