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COVID-19: Limits imposed on landlords’ remedies

27 April 2020

Under the Coronavirus Act 2020, the proposed Corporate Insolvency and Governance Act, and secondary legislation made under them, the remedies normally available to landlords have been and shortly will be severely curtailed. The legislation provides for an initial period of restriction until 30 June 2020 but this can be extended by the government.

The combined result of the measures is to leave landlords with little immediate recourse against non-paying tenants where the reason for non-payment is coronavirus-related. The principal remedies remaining to landlords during this period are deductions from rent deposits and debt claims against tenants or their guarantors.

In the case of rent deposits, while they can be used to pay arrears of rent and service charge, and provide immediate financial relief to landlords, if the tenant cannot afford to pay the principal sum, they are unlikely to be able to top up the deposit again. Therefore, the use of deposits will be of time-limited utility to landlords.

In relation to guarantor claims, while they are useful and potentially unlimited in amount, unlike rent deposits, if the guarantor is also affected by coronavirus, the guarantee may be of little use to the landlord.

Court claims for non-payment (against tenants and their guarantors) remain an option open to landlords as usual. However, again, if the tenant or guarantor cannot afford to pay the principal sum, they are unlikely to be able to satisfy any judgment debt. In addition, the delays in the court process to obtain the initial judgment and the further delays involved in the enforcement process (both in the ordinary course and any further coronavirus related court delays) mean that these will also be of little immediate use to landlords.

It is worth noting that, the legislation does not affect the use of break clauses. Therefore, a landlord could operate their break if they had one. However, in the current market, landlords may prefer to have a non-paying tenant in the short term rather than take a chance on trying to find a new tenant on the open market at this time.

With this set of measures, the government has focussed on protecting tenants at the expense of the remedies available to landlords. Landlords are then left to seek arrangements with their lenders to reduce their payments under their lending facilities and to cover the costs that would normally be paid by tenants via their service charges etc.

The government hopes that mutually acceptable agreements can be reached between landlords and tenants, and we are seeing evidence of this with many landlords and tenants agreeing to rent-free periods and/or rent-deferrals.

However, if coronavirus restrictions on the opening of shops and offices continue after 30 June 2020, the government may need to review the restrictions and support for businesses in order to provide a more balanced situation for landlords and tenants.

The details of how the principal remedies which have been curtailed and are generally available to landlords in relation to solvent tenants (those not under any kind of insolvency procedure) are detailed here.

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