Commercial Arrears - Commercial Rent (Coronavirus) Act Part 3 - What actions are going to be restricted whilst this procedure is available?

The arbitration process is a voluntary one. If neither party wants to use it, they will not be forced to. However, whilst the scheme is in place, there are significant restrictions on the availability of redress through the conventional methods. We will go through some of the main restrictions below:

Forfeiture

By Schedule 2 paragraph 5(1) of the Act, ‘the landlord may not, during the moratorium period for the protected debt, enforce, by action or otherwise, a right of re-entry or forfeiture for non-payment of the debt.’

This would indicate that there can be no forfeiture action whether by peaceable re-entry or otherwise relating to the protected rent arrears. Although, under the terms of this Act, subsequent arrears incurred after the relevant period do not afford the same protection. There may well be further protection brought in to account for this but there no such protections within this Act.

Attention does need to be given to the section below on use of the deposit and assigning payments when establishing the existence of this debt.

As a set off to this and presumably to encourage open negotiations regarding the repayment of any protected debt, landlords will not be considered to have waived their right to forfeit on those same arrears if no agreement is reached and there continues to be non-payment by the tenant.  

CRAR (Commercial Rent Arrears Recovery) and debt claims

The Landlord would not be able to use the CRAR to recover the protected rent.

Instead of using CRAR, if the landlord was looking to obtain judgment for the arrears as many have done following the decision in London Trocadero LLP v Picturehouse Cinemas Limited and Others [2021], they will again have restrictions imposed on them. No new claim can be started on the protected rent. In addition if a claim was issued for the protected rent before the act is passed but on or after 10 November, either party can apply for the claim to be stayed. If an application to stay is made correctly and involving the protected rent, the court will have no option but to agree to the stay.

Taking money from deposit

Money cannot be taken from the security deposit by the landlord to pay for the protected arrears. Equally, if the security deposit that has already been drawn from to cover any protected rent and not subsequently topped up by the tenant, those arrears are not automatically considered paid. The tenant would still have the right to apply through the arbitrator to determine those same arrears.

Assigning payment against specific debts

As set out in Schedule 2 paragraph 7(2) of the Act ‘the landlord’s right to appropriate the payment must be used to apply the payment to meet the unprotected rent debt before it is applied to the protected rent debt.’

This will stop the landlord, without the tenant’s express consent, applying recent payments against those protected rent arrears to leave unprotected arrears which as mentioned earlier under this Act can be enforced as necessary.

Conclusion

There are more restrictions on other types of enforcement and a significant amount more detail on each of the issues that we have raised in this blog. Failure to comply can result in significant cost sanctions and orders to set aside or cancel any entries in the register of judgments. It is therefore worth ensuring to the extent possible, that all options have been considered prior to rushing ahead with early enforcement.