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Further restrictions on recovering rent from defaulting tenants

The UK government has just announced that it is yet again changing the rules for dealing with commercial tenants who are failing to pay their rent.

The press release (published Friday 9 September) announces some minor changes (see below) for England and Wales (similar changes will apply elsewhere but are outside the scope of this note) but critically makes reference to landlords not being able to make winding up petitions for the non-payment of rent, the implication being that this will last until 31 March 2022. The changes will be made by a Statutory Instrument which has yet to be published.

When the last round of changes were announced in June 2021, we said then that it looked illogical that landlords would be able to present a winding up petition from September 2021 when most forfeiture proceedings for the non-payment of rent were to be prohibited through to March 2022 and we concluded it was probably an error. This announcement appears to recognise that this was indeed an oversight and seeks to correct it.

The announcement also temporarily raises the threshold for a winding up petition to be justifiable to £10,000 and further imposes a 21 day notice period onto a debtor business before a winding up petition can be presented.

The announcement repeats the government’s intention of introducing an arbitration scheme to deal with the commercial rent debts accrued during the pandemic, but no further details are provided. In the short term at least, landlords therefore have few options to deal with tenants who, although able to pay rent, choose not to do so. It remains our prediction that the government’s intention for March 2022 will be to allow landlords to take action over rent default going forwards but that they envisage that the proposed arbitration scheme will address how the accumulated rent debts are to be met; indeed, the government has indicated that it may well provide for such debts to be shared between the landlord and tenant. There is therefore the real possibility that at least some of this debt will never be paid, even by solvent tenants, and this possibility only serves to encourage tenants into not paying their rent.

With the possibility of rent debt being partly written off by government action, landlords should be looking now to make sure that every avenue to recover rent or to maximise the future potential to do so has been explored. Obviously, solutions will be case dependent but starting debt proceedings against the tenant, targeting current guarantors and guarantors under AGAs where leases have been assigned (noting the need to serve notice to protect the ability to make such a claim), or targeting sub-tenants remain possible options. Lenders would be well advised to ensure that their borrowers have looked closely at this.

If you have any questions please contact Tony Guthrie or a member of our Value Recovery team.

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Tony Guthrie