New Commercial (Rent) Act, new restrictions

Posted: 24/03/2022

With the Commercial Rent (Coronavirus) Bill having received Royal Assent, Penningtons Manches Cooper’s real estate litigation team sets out below an overview of the restrictions now coming into force.

There are restrictions on the service of statutory demands and winding-up petitions where a debtor company is unable to pay sums claimed due to coronavirus, which are due to expire on 31 March 2022.

The original restrictions on forfeiture for Wales have also now been extended to 24 September 2022. This means that landlords in Wales cannot forfeit for any rent debt - whether a Protected Rent Debt or not - for the duration of the new moratorium.

New restrictions

From 25 March 2022, a new moratorium will be put in place which will apply for either six months from the date that the act comes into force or, if the matter is referred to arbitration, the day on which the arbitration concludes. There are provisions in the act to extend this moratorium period if needed, as well as to designate future lockdowns as relevant periods for Protected Rent Debt.

The new restrictions under the moratorium are set out below and relate solely to Protected Rent Debt. Please see our previous article for an explanation of which rents are included in this definition.

Debt Claims

Landlords are prevented from making a debt claim to enforce a Protected Rent Debt during the moratorium period. This restriction applies to any parties to the lease, not just the tenant, so guarantors will also be protected together with former tenants and former guarantors who remain liable.

Where a claim was brought after 10 November 2021 and judgment was given in favour of the landlord before 24 March 2022, that judgment debt will be subject to the moratorium and can be referred to arbitration if it relates to Protected Rent Debt.

If relief from payment is granted by the arbitrator, the officer of the court must be notified so that they can send a request to the registrar to cancel the relevant entry in the register of judgments.

CRAR

Although CRAR cannot be used during the new moratorium for Protected Rent Debts, it will be available for non-protected debts.

Re-entry or forfeiture

Forfeiture is not available to landlords on the basis of Protected Rent Debts during the new moratorium. The restriction also extends to landlords who are protected from waiving their right to forfeit for this period in relation to Protected Rent Debts.

It is important to note that the previous moratorium extended to a landlord’s ability to waive the right to forfeit for sums due under a lease for the period from 26 March 2020 up to 25 March 2022. This moratorium expires on 25 March 2022 for any arrears which are not Protected Rent Debts that fall under the new moratorium in the act. Both landlords and agents will need to put rent accounts on hold if they wish to forfeit a lease for non-payment of rent to avoid any waiver arising.

Superior tenants were protected under the Coronavirus Act 2020 moratorium. After 25 March 2022, landlords can forfeit superior leases where the superior tenant is not in occupation as this is not a business tenancy. However, a sub-tenant would be protected against forfeiture and can apply for relief for their interest in the property comprised within their sub-lease.

As mentioned above, forfeiture and rights of re-entry cannot be exercised for premises in Wales until 24 September 2022.

Ground (b) Landlord and Tenant Act 1954

Landlords will be further prevented from relying on ground (b) for Protected Rent Debts that remain unpaid for the duration of the new moratorium.

Deposits

Drawdowns from rent deposits cannot be exercised for Protected Rent Debts during the new moratorium. In cases where landlords have already drawn down from rent deposits prior to the start of the moratorium but the tenant has failed to top up the deposit, the tenant is not required to make good any shortfall during the moratorium.

Appropriation of rent

Where there are rent arrears and a tenant pays rent without stating what period it relates to (ie whether the payment is made for the arrears or for the new rent due), the landlord ordinarily has a right to assign that payment to whatever period they prefer.

Under the act, however, a landlord’s right to appropriate rent in this manner is restricted during the moratorium period. Any payment received must be applied to meet any rent debt which does not have protected status under the act. Until the unprotected debt is cleared, payments cannot be attributed to Protected Rent Debts. This is to prevent landlords from clearing the Protected Rent Debts first so they can take action on the basis of the unprotected rent.

Similarly, if a tenant has stated that sums paid are for a particular period, even if that period relates to a Protected Rent Debt, it cannot be re-appropriated to a different period. This restriction has retrospective effect and applies to all rent payments that have been appropriated since the day after the last day of the ‘protected period’

As explained in our previous article, the expiry of the protected period will depend on how the business was run or the way the premises were used. For instance, the last day of the protected period for non-essential retail premises in England would be 11 April 2021 whereas, for theatres and nightclubs, it would be 18 July 2021.

Winding-up and bankruptcy petitions

During the new moratorium, landlords are prevented from presenting winding up petitions against companies in England, Wales and Scotland where the debt owed is a Protected Rent Debt.

Where the tenant is an individual rather than a company, landlords are also unable to present a petition for bankruptcy where the debt owed is a Protected Rent Debt.

Where a bankruptcy order was made prior to 25 March 2022 but after 10 November 2021, and the order would not have been made if the new moratorium had been in force, the court is regarded as having had no power to make the order and the order is void.

If you wish to take action as a landlord or are concerned about being the subject of such action as a tenant for the non-payment of non-protected rent debts, please get in touch.

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