Years of arrears: The post-pandemic position on commercial rent
During the pandemic, the enactment of emergency legislation to tackle the challenges of the Covid-19 pandemic changed the landscape for commercial landlords in respect of rent arrears. Such legislation provided temporary protection to businesses who were struggling to pay their rent. It aimed to remove the threat of eviction for those who were forced to close as a result of Covid-19 restrictions. As a result, the remedies available to landlords were strictly limited.
However, more than two years later and following several extensions of these measures, these legislative protections expired in March of this year, leaving the current position unclear and many commercial landlords hoping that their rights have now reverted to the pre-pandemic position.
Prior to the Covid-19 pandemic, commercial landlords had a range of remedies available when their tenants failed to pay their rent in accordance with the lease. Such remedies included the rights of re-entry and forfeiture which allow a lease to end earlier than contracted due to a breach of the lease by a commercial tenant. In instances where a commercial tenant was in significant arrears, a commercial landlord may have also looked toward debt recovery proceedings, such as issuing a statutory demand, to recover the outstanding debt.
However, the emergency legislation enacted by way of the Coronavirus Act 2020 removed the rights of re-entry or forfeiture from commercial landlords in the event of non-payment and placed significant restrictions on the debt recovery process.
The above legislative provisions expired in Northern Ireland on 25 March 2022 leaving commercial landlords reassessing their position, some of whom have seen rent arrears build up excessively over the past two years. Now that such limitations have been removed, many commercial landlords are hopeful that they can enforce their rights via Court proceedings in the event of a continuing failure to pay rent by their tenants.
However, there are additional points to consider as we emerge from the pandemic:
In England and Wales, the Commercial Rent (Coronavirus) Bill 2021-2022 was introduced on 24 March 2022 to replace the emergency provisions and introduce a binding arbitration process for commercial landlords and tenants to deal with outstanding rent arrears caused by the enforced restrictions and closures.
Under this new legislation, commercial landlords and tenants will be required to come to an agreement on how any arrears should be dealt with which in some cases may require waiving some of the amount due or agreeing to a longer-term repayment plan. This legislation adopts the same principles as the Coronavirus Act in supporting the survival of businesses adversely affected by the pandemic.
Code of Practice for commercial landlords
At present, Northern Ireland has not introduced similar legislation and the position remains somewhat unclear. However, the Executive encourages commercial landlords to follow the Code of Practice for commercial property relationships as a reference point for all landlords and tenants who are experiencing payment issues. This discourages the eviction of commercial tenants who have experienced serious disruption to their business and instead encourages the parties to negotiate and afford tenants time to get their business back on track and repay their debts.
Debt proceedings in Northern Ireland have been severely restricted since the pandemic began in order to protect the most vulnerable businesses in those industries most adversely affected. The court has issued a guidance note which requires that a petition debt is grounded on a court judgment, decree or court order prior to issuing a statutory demand. Whilst the courts have always expressed that a statutory demand is not a debt recovery tool, this guidance note has made clear that a judgment for debt is required before you issue a demand, which procedurally cements the requirement for debt proceedings in the first instance before you proceed to the Bankruptcy Court.
What happens next?
Undoubtedly, many businesses were hit hard by the pandemic and are only just getting back on their feet, particularly those within the hospitality and retail sectors. Commercial tenants have felt the squeeze also in relation to rates, with the plans for reductions still not yet implemented with there being no executive. Similarly, it has been a difficult time for landlords who have experienced significant arrears with limited recourse.
In Northern Ireland, the position remains somewhat unknown but there continues to be encouragement from the Executive for commercial landlords and tenants to work closely together in order to seek an amicable resolution to rent arrears, whether through ADR or otherwise.
In light of the principles currently governing commercial rent, commercial landlords experiencing issues with rent payments should aim to negotiate with their tenants and reach an amicable agreement in the first instance. The Courts will undoubtedly take a sympathetic view to tenants, therefore it is prudent that efforts are made to try and find a resolution. However, the option of litigation remains open and can be explored.
For further information, in relation to this topic, please contact Ciaran McCorry, Senior Associate or any member of the ALG Belfast Litigation & Dispute Resolution team.
Date published: 10 November 2022