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Volume XIII, Number 32

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Commercial Landlords v. Tenants: Let Battle Recommence

Key Points

  • An arbitration scheme for commercial landlords and tenants was introduced during March 2022 under the Commercial Rent (Coronavirus) Act 2022 with the aim of resolving disputes over outstanding rent arrears falling due in periods when lockdown restrictions were in force (known as protected rent debts).

  • The UK Government expected 7,500 cases to be referred to the arbitration scheme. However, the Property Litigation Association has reported an exceptionally low uptake.

  • Given the short time frame for referrals to be made to the arbitration scheme (six months), there was little incentive for landlords to initiate arbitration proceedings.

  • Following the conclusion of the scheme on 24 September 2022, the accompanying moratorium on landlord enforcement has also come to an end and landlords are now able to exercise their usual remedies for non-payment of rents.

Commentary: Published Arbitration Awards

The limited number of published arbitration awards highlight the narrow scope of relief afforded to tenants who were referred to the scheme. Based on the most high profile publicised awards, the rulings, which were all in favour of the landlord, were decided on the following grounds:

  • There was no protected rent debt under the scheme as, even though the applicant's retail stores had to close down for a period of time pursuant to the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020, the offices, which the application concerned, were not subject to a similar closure requirement (Signet Trading Limited v. Fprop Offices (Nominee) 4 Limited and Fprop Offices (Nominee) 5 Limited).

  • The tenant had "simply buried its head in the sand and adopted a policy of radio silence," and that furthermore, the arbitrator found no evidence that the tenant was not viable or unable to pay its debts (TPIF (Portfolio No.1 GP) LLP and TPIF (Portfolio No.1) Nominee Limited v. Nuffield Health).

On the conclusion of the arbitration scheme, it appears that its impact on the vast sum of outstanding rent arrears (c.£9bn) has been negligible. The limited time period for the implementation of the scheme has done little to encourage parties to undertake alternative dispute resolution to resolve the position relating to outstanding arrears. Instead, in light of the limited relief now available to tenants for non-payment of rents, the majority of landlords will have bided their time to take enforcement action to recover rent arrears without restriction.

Commercial Landlords: Enforcement Options

Following the end of statutory protections, landlords can now benefit from all enforcement options being back on the table. Landlords with tenants who have not made a referral to the arbitration scheme, or whose referral to the scheme has now concluded but no payment has been made, are able to utilise all pre-pandemic enforcement measures against tenants for non-payment of arrears, which include:

  • issuing debt proceedings to recover outstanding arrears;

  • forfeiture;

  • commercial rent arrears recovery (CRAR);

  • pursuing a guarantor or former tenant;

  • drawing down on a rent deposit; and/or

  • commencing insolvency proceedings against a commercial tenant.

Whilst many will welcome the removal of restrictions, landlords should be cognisant that commercial tenants may need to enter into an insolvency process as a result of accumulated outstanding rental arrears.

Given the arbitration scheme not ruling in favour of tenants and the Court of Appeal also finding in favour of landlords (see London Trocadero (2015) LLP v. Picturehouse Cinemas Ltd.), it would appear that tenants are presented with a limited ability to justify non-payment of rents if their businesses were able to operate during the pandemic (even in a restricted capacity) and/or are currently viable.

This seemingly underlying theme towards favouring commercial landlords could in fact sound as a warning notice to landlords not to pursue their tenants overly aggressively due to the risk of pushing them towards insolvency. The Insolvency Service has confirmed in the latest insolvency statistics report that company insolvency figures were higher than pre-pandemic levels, driven by an increase in the number of Creditors' Voluntary Liquidations. The Insolvency Service's latest published figures reported that August 2022 saw an increase of 550 percent in the number of Company Voluntary Arrangements and an increase of 111 percent in the number of administrations compared to the same period during 2021.

Conclusion

Commercial landlords must consider which remedies will be appropriate in the circumstances and should obtain legal advice in order to obtain further guidance on initiating enforcement proceedings against tenants.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume XII, Number 335
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About this Author

Partner

Prav Reddy guides office holders, creditors, debtors, banks and distressed companies through transactional corporate and personal insolvency matters. His practice focuses on office holder driven contentious work including fraud, undervalue, preference, misfeasance and s423 actions. Clients trust in his significant experience in administration work and counsel related to real estate matters.

Navigating complex challenges related to cross-border and international bankruptcy

Prav understands the unique needs of banks when it comes to enforcement work, most notably matters...

+44 (0) 20 7770 5213
Senior Associate

Mark Johnson advises across the full spectrum of insolvency and restructuring matters, both contentious and non-contentious, in the UK and cross-border. He represents insolvency practitioners, banks, companies and their directors, individuals and other key stakeholders, providing advice on formal insolvency procedures such as administration, liquidation and bankruptcy as well as assisting companies facing potential insolvency and the restructuring options available to them.

Knowledge that spans a wide range of matters

On the contentious side, Mark assists office holders...

+44 (0) 20 7770 5214
Martyn Strong Real Estate Attorney London
Senior Associate

As a senior associate in the Real Estate group at Katten Muchin Rosenman UK LLP, Martyn Strong assists clients with structuring, transacting and funding real estate deals. He represents diverse clients, from major property companies, ultra-high-net-worth individuals and developers to institutional investors, private equity funds, family offices, overseas banks and corporate occupiers. Martyn works across all asset classes and transactions, including asset sale/purchase, corporate vehicle acquisition and disposal, fundings and financings, joint ventures, debt purchase,...

44-0-20-7770-5237
Rhodri Preece Attorney Real Estate Katten Law Firm London
Associate

Rhodri Preece is a senior associate at Katten Muchin Rosenman UK LLP, specializing in commercial real estate matters. Rhodri has experience across a range of development and investment matters —particularly in the hospitality sector — as well as landlord and tenant issues. He helps clients (whether they are borrowers or lenders) with all types of real estate transactions. Previous matters have included the sale and purchase of multimillion-pound mixed-use portfolios, commercial lettings of offices, retail spaces and industrial units, as well as acting for lenders in the...

44-0-20-7776-7646
Dominique Hodgson Associate Katten
Associate

Dominique Hodgson advises across the full spectrum of insolvency and restructuring matters, both contentious and non-contentious, in the UK and cross-border. Dominique works with her colleagues in the Insolvency and Restructuring practice representing insolvency practitioners, banks, companies and their directors, individuals and other key stakeholders to provide counsel on formal insolvency procedures such as administration, liquidation and bankruptcy as well as advising companies facing potential financial difficulties on the restructuring options available to them....

+44 (0) 20 7770 5239
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