Corporate Insolvency and Governance Bill – a ‘second shield’ for commercial tenants?

Read more articles by: James Nelson, Read more articles by: Sarah Wertheim,

The government has set out their intention to introduce further legislation to assist commercial tenants, thereby providing a further layer of support to those tenants, in addition to the moratorium on commercial forfeiture contained in the Coronavirus Act 2020 and now already in force.

The government’s justification for such measures is predominantly to safeguard tenants (with particular emphasis on ‘high street’ tenants) against aggressive debt recovery actions by landlords during the COVID-19 lockdown. These new measures will be included in the forthcoming Corporate Insolvency and Governance Bill.

The government press release has reported that most landlords are collaborating with their tenants to reach agreements in order to mollify financial pressures. Nevertheless, a minority of landlords are reported to be employing aggressive debt recovery tactics, placing tenants under pressure.

To prevent the utilisation of such tactics, the government intends to put the following measures in place:

  1. A temporary ban on the use of statutory demands made between 1 March 2020 and 30 June 2020.
  2. A temporary ban on the use of winding up petitions presented from Monday 27 April through to 30 June 2020. The new legislation will not permit petitions to be presented or winding up orders made if the company’s inability to pay is a result of COVID-19.
  3. The introduction of secondary legislation to prevent landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.

On the one hand, the proposed measures assist commercial tenants by partially lifting some of the pressures facing those l tenants but on the other hand appears to do little for the landlords. Few would dispute the fact that COVID-19 has created unprecedented challenges for commercial tenants across the UK, with the ability to pay rent due being a concern for many. Some tenants are fighting for further legislation to be passed  providing even greater protections – for example, a campaign called ‘#NationalTimeOut’ are seeking a nine-month rent free period. For this reason, many landlords have been willing to negotiate rent plans with tenants, including rent deferrals and where possible, rent holidays.

The government guidance seems to do little for the landlords, who have to factor in their own financial burdens and responsibilities to lenders and investors (and indeed their own landlords) higher up the chain. The Times journalist Oliver Shah, in his column last Sunday entitled “The case for landlords”, opined that the proposed legislation was ‘superficially attractive, ultimately counter-productive’ and had ‘disturbed the natural order that would have seen most disputes resolved in due course’. As per Shah’s contention, some would argue that the legislation has not struck a fair balance. After all, if the law is to address a ‘minority’ of aggressive landlords, it raises questions as to whether the restrictions on all landlords is proportionate. The proposal is palpably one-sided, albeit with the best of intentions, however it may inadvertently tip the bargaining power in ongoing negotiations firmly towards the tenant.

Whilst the provisions of what will likely become the Corporate Insolvency and Governance Act 2020 are not yet fully known, commercial landlords should consider the likelihood of above becoming law in contemplation of any current rent negotiations with their commercial tenants and seek legal guidance as to how such arrangements can be best documented.

This article is for general awareness only and does not constitute legal or professional advice. Law and guidance relating to the COVID19 pandemic is continually being updated and the law may have changed since this page was first published. If you would like further advice and assistance in relation to any issues raised, please contact us today by telephone or email  covidhelp@sharpepritchard.co.uk.

Posted in Authors, Coronavirus (COVID-19), James Nelson, Sarah Wertheim.