Commercial Landlords: What can Landlords do?

In 2020 the government published its (voluntary) code of practice for landlords and tenants to work together to try and reach an agreement as to the payment of rent.

https://www.gov.uk/government/publications/code-of-practice-for-the-commercial-property-sector

Over a year since the start of lockdown, many commercial landlords and tenants are working together and agreeing terms for the payment of rent.

There are circumstances where landlords and tenants may not be able to work together, for example, where tenants refuse to pay rent even though their industry is not “closed” or there were issues paying rent before the pandemic.

From a practical point of view, what can Commercial Landlords do when they are owed rent?

Letter of Claim and court proceedings

1. A letter of claim, threatening to issue court proceedings, may persuade the tenant to enter into a dialogue with the landlord to reach agreement on the payment of arrears.
2. If that does not work a Landlord could issue court proceedings for arrears of rent and other sums payable under the lease. There are some practical challenges with enforcement, but it would give the landlord a county court judgment against the tenant. One option would be a third party debt order, where a freeze can be placed on the tenant’s bank account for the amount in the judgment.

Summary Judgment

Commercial Landlords can apply for summary judgment. This is where the tenant has no real prospect of defending the claim and there is no good reason why it cannot be settled at this stage and avoid the need for a trial. This is a useful procedure to consider as: -

1. An application for summary judgment by its very nature will be heard before a main trial and is comparatively inexpensive compared to a full trial.
2. At this stage the landlord may be able to claim a proportion of its costs from the tenant.
3. If the application for summary judgment is refused, the court will often order the tenant to pay a sum of money into court, the landlord’s position to be paid is protected on any future insolvency of the tenant.

Commerz Real Investmentgesellschaft mbH v TFS Stores Limited [2021]

In these uncertain times, it was felt the courts may take account of the pandemic but in the very recent case of Commerz Real Investmentgesellschaft mbH v TFS Stores Limited [2021], the court decided that:

1. The Code of Practice did not have the effect of varying or suspending the contractual terms of any commercial lease. It should be noted, in this case the landlord had engaged with the tenant in respect of the Code of Practice.
2. The government had expressly suspended various legal rights (such as forfeiture, in certain circumstances) but had not suspended the right of a landlord to bring a claim for unpaid rent and service charges.
3. The Commercial Landlord was given an order for summary judgment for the unpaid rent

In the majority of leases, a landlord can claim interest on any late payments and landlords should check the lease for details of this and inform the tenant that they will be looking for interest on the arrears. Although the bank base rate is low, most leases include a higher interest rate.

Many leases provide that the tenant will be liable for landlord’s costs associated with claiming or recovering any arrears of rent. The court can exercise its jurisdiction in determining the costs liability and therefore the full costs are unlikely to be claimable.

Commercial Rent Arrears Recovery (CRAR)

This allows a Commercial Landlord to seize and sell tenant’s goods to recover arrears. It only applies to rent, interest, and VAT and not to service charges or insurance, even if these are claimed as rent under the lease.

CRAR can only be exercisable if at least 366 days rent is overdue (from 25.12.20 to 25.03.21), this has been increased to 457 days unpaid rent (from 25.03.21 to 23.06.21) and will increase further to 554 days unpaid rent (from 24.06.21).

Forfeiture

Forfeiture for non-payment of rent is prevented until after 30 June 2021. On the plus side these sums will remain due and only an express waiver will waive the right to forfeit when the restriction is lifted.

However, the right to forfeit for other breaches of the lease remains unaffected.

If you would like any assistance or advice on any of the above issues, or the other options available to commercial landlords seeking to recover unpaid rent, please contact Maggie Kerr on 01707 329333.