There is good news for Landlords who have been waiting to be able to take action against their commercial tenants.
As of 26 March 2022, Landlords can now, once again, exercise their right of forfeiture.
The process of forfeiture (re-entry) is the landlord’s right to determine the lease in the following instances:
- Where the tenant is in breach of any of its obligations under the lease; or
- On the occurrence of certain events specified in the lease, such as the tenant’s insolvency (see below).
A landlord can affect forfeiture either by peaceably re-entering the property or commencing court proceedings.
Near the start of the coronavirus pandemic, on 21 March 2020, The Coronavirus Act 2020 brought in a moratorium to protect commercial tenants during the pandemic. The moratorium prevented landlords from being able to evict commercial tenants for rent arrears.
As of 26 March 2022, the moratorium has now been lifted, meaning landlords can once again take steps to recover possession of their commercial premises. Extra care should be taken to ensure that Landlords do not they do not waive their right to forfeit by demanding, accepting the rent, or otherwise treating the lease as continuing after 26 March 2022.
It should also be noted that certain rent arrears will be protected under The Commercial Rent (Coronavirus) Act 2022. ‘Protected rent debt’ applies where:
- A business tenancy was adversely affected the coronavirus, e.g mandated to close its business
- The rent arrears were accrued during the protected period (21 March 2020 to 18 July 2021)
If the above apply, a landlord is currently subject to a temporary moratorium and is unable to exercise the right to forfeiture for those arrears, or seek repayment of those arrears (see CRAR section below).
During this temporary moratorium, in order to deal with any protected rent debt, a legally binding arbitration process is available for eligible commercial landlords and tenants who have not already reached an agreement with regards to protected rent debt. This is to try and resolve any disputes and to help the market return to normal as quickly as possible.
There are a number of factors to take into account and so professional advice should always be taken before exercising the right to forfeit.
Commercial Rent Arrears Recovery (CRAR)
CRAR is a method of enforcement that can be used by commercial Landlords to recover arrears of rent. This method of enforcement was also subject to a moratorium as a result of the coronavirus restrictions. However, such restrictions have now been lifted for all but “protected rent debts”, as described above.
CRAR replaced the historical method of distress against goods. Essentially, a commercial landlord can instruct an enforcement agent (such as a certified Bailiff) to take control and possession of the tenant’s goods to sell them to recover rent arrears. This requires the correct notice to be served upon the tenant prior to such action being taken.
Such recovery can only be against principal rent, VAT, and interest and not any other losses due to the Landlord, say for breach of the terms of the tenancy (property damage etc). The procedure also provides a prescribed procedure for the method of sale of goods seized. CRAR can pose practical challenges and landlords must ensure that the correct procedure is followed, or the procedure can be challenged by the tenant.
If you have any queries or require any advice arising out of the above, please do not hesitate to contact our litigation department on 01524 846846.
