Commercial rent arrears during COVID-19

May 20, 2020 / News & General

Businesses unable to pay rent during lockdown

In March, the government ordered the closure of all pubs, shops, restaurants, cafes and bars in a bid to tackle the spread of coronavirus. This effectively put a halt to the hospitality and high street retail industries, as they have been unable to trade. For those affected, it has had a devastating impact on cash flow and their ability to pay rent on time.

Even those businesses who have been able to continue to operate, in a limited capacity or by amending their service, will have seen a downturn in business and will be suffering.

To help businesses, the UK government has introduced a three-month suspension on evictions of commercial tenants whilst lockdown measures remain in place.

Forfeiture rights halted give short-term relief

Usually, a landlord would have the right to evict their tenant for non-payment of rent. There is a clause called a ‘forfeiture clause’ which allows the landlord to re-enter the premises peacefully and take back possession of premises once a certain level of rent arrears has been reached.

However, under the Government’s new Coronavirus Act 2020 these forfeiture rights have been halted. Currently, they are suspended until 30th June 2020 – but they could be extended.

This means that tenants can remain in occupation of their business premises even if they are unable to pay their rent during lockdown, and landlords are unable to evict their tenants for non-payment of rent.

The liability to pay rent remains in the long-term

Whilst this pause on evictions is beneficial to business owners in the short-term, tenants will still owe their landlords the rent they should otherwise have been paying during this time. This means that tenants are racking up debts which they must pay in the future to their landlords. 

So how will businesses be able to cope once these forfeiture rights can be enforced? Many will not be able to come up with the rent that they owe, and there has been no news on what will happen once this moratorium on forfeiture is lifted. 

It could be assumed that landlords will once again have the power to evict commercial tenants who have not paid rent. Of course, some businesses may be able to come to an agreement with their landlords about paying back the rent arrears but that may not be viable for everyone.

It may be possible that the government could introduce a new scheme, similar to a Company Voluntary Arrangement (CVA), that may allow the terms of commercial leases to be varied. But nothing has been announced yet, and it’s likely that many businesses won’t make it through the pandemic and may have to go down the insolvency route, such as a Creditors’ Voluntary Liquidation (CVL).

If your business is having cash flow problems and you’re concerned that you won’t be able to pay your rent (and other bills), we can help you.

With our free and no obligation advice, Clarke Bell can help you work out the best option for you to take. 

Contact us on 0161 907 4044 or for more information.