Landlords brace themselves for June Quarter Day

Insights - 23/06/2020

On Friday, the Communities Secretary Robert Jenrick announced that the Government intended to extend the moratorium on forfeiture for rent arrears until 30 September. An amendment to the Corporate Insolvency and Governance Bill has been tabled which will extend the temporary ban on statutory demands and winding up petitions due to Covid-19 insolvency*, to 30 September 2020.

Wednesday 24 June is the next rent quarter day when Landlords will be expecting rents due for the 3 months to 29 September. Non-essential retailers were allowed to begin trading on 15 June, but it is unlikely that nine days of resumed trading will have allowed tenants to build up sufficient reserves to make the June quarter rent. Leisure businesses – gyms, for example – are still not trading.

With landlords unable to take any action against tenants to recover rent arrears, or to forfeit leases for unpaid rent, many tenants will simply choose not to pay the June quarter and to hold onto their money, hoping that business will pick up sufficiently over the summer to allow them to pay up to date in September.  Landlords face receiving a small percentage of the rent they are owed; and will be worrying that they may never see the March or June quarter day rents they are owed.

Tenants are pushing for rent holidays and a move to monthly rental payments or even turnover based rent. With landlords and tenants negotiating hard to ensure that both sides stay solvent, the Government has published its draft code of practice for commercial property for landlords and tenants which sets out 6 key points:

  • It’s a voluntary code – The code is not binding, but the Government has said that it will consider making it mandatory. The code applies to all leases.
  • Transparency and Partnership – Landlords and tenants are encouraged to act reasonably, co-operatively and in good faith.
  • A unified approach – Landlords and tenants should help and support each other in all dealings with other stakeholders including utilities, banks and government
  • Government support – Government support will continue
  • Acting Reasonably & responsibly – Tenants who are in a position to pay in full should do so
  • Rental Payment of Waiver plans – Landlords and tenants should be transparent in their dealings with each other in negotiating payment plans

Landlords can still take action to recover property by forfeiting the lease for breach of covenant – for example, unlicensed alterations, or a prohibited sub-let. Forfeiture is a difficult and complex area of law and any landlord considering such action should take expert advice.  Claims can still be made against guarantors.

*Where a company cannot pay its bills due to cash flow problems caused by the Covid-19 restrictions

If you have any questions relating to the above please contact Catherine Fisher, Head of Dispute Resolution by email on [email protected] or by phone on 020 8971 1042 

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.