04 May 2021 | Covid-19 | Insolvency | Leasing and Commercial

Emerging from lockdown – what landlords need to know 

The temporary measures designed to protect distressed commercial tenants and other businesses have recently been extended by the UK and Scottish Governments.  Restrictions on issuing statutory demands and winding up petitions are now due to expire on 30 June 2021, and the restriction on irritancy due to lease arrears is due to expire on 30 September 2021. 

With the rollout of vaccinations and relaxation of restrictions on movement and businesses both ongoing, there is an expectation that this recent extension may be the last before restrictions cease or are at least subject to gradual withdrawal.  However, notwithstanding these and the other tenant protections available, many of the challenges faced by commercial landlords and tenants are set to continue as lockdown rules are eased.  For example, many tenants will be under pressure to deal with accumulated rent arrears – especially where no payments have been made to arrears during the current 14 week minimum notice period to remedy non-payment of rent. 

Whilst the restrictions on a landlord's ability to irritate their lease or wind up their tenant will continue to apply until later this year, options such as mutual concessions with tenants or the use of summary diligence such as charges for payment and attachment still remain available.  However, the outlook for landlords and tenants remains uncertain due to an ever-changing insolvency landscape and the UK Legislatures having to keep up. 

Collaboration between landlords and tenants 

There is an expectation that, if they have not already done so, tenants will engage with landlords about possible new arrangements.  Prior to any engagement, landlords should be aware of their rights as well as the principles contained within the UK Government's "Code of Practice for commercial property relationships during the COVID-19 pandemic", which continues to apply until 24 June 2021. 

Tenants may also seek to utilise the standalone moratorium introduced by the Corporate Insolvency and Governance Act 2020 (CIGA).  Its intention is to provide businesses with a temporary stay on enforcement action by creditors, including landlords, to allow them to restructure their liabilities and ultimately rescue the business as a going concern.  However, rent is still required to be paid during this moratorium period. 

CVAs and the emergence of the Restructuring Plan 

Many recent CVAs have sought to amend the terms of leases such as changes to turnover-based rent, reductions in rent as well as some seeking to compromise rent arrears altogether.  However, with the outcome of the landlord challenge to the New Look and Regis CVAs expected imminently, the future use of CVAs as a restructuring tool by companies with large lease liabilities is uncertain. 

The Virgin Active group Restructuring Plan, which is currently going through the courts in England, is the first to seek to compromise lease liabilities. UK Restructuring Plans were also introduced by CIGA and draw inspiration from the Scheme of Arrangement but can be imposed on a dissenting class of creditors by use of a “cross-class cram-down”. As a court-sanctioned process, they also allow a company to seek sanction of their proposals from the court at the outset and, if successful, provide them with certainty. 

If this Restructuring Plan is sanctioned by the court at its sanction hearing on 29 April, we would expect more Restructuring Plans akin to CVAs to be proposed in future – adding to the many economic challenges already facing landlords. 

What can landlords do now? 

Proactivity from the outset remains vital.  In the event of a tenant exhibiting signs of financial distress, it is important that both parties engage as soon as possible in an attempt to reach a consensual solution. 

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Kevin Mulligan Solicitor, Pinsent Masons