The end of the Commercial Rent (Coronavirus) Act 2022 – what this means for commercial landlords and tenants

The provisions of the Commercial Rent (Coronavirus) Act 2022 (the Act) expired on 24th September. The Act was brought in with the intention of providing financial relief to business tenants adversely affected by the Coronavirus pandemic, and its expiry means that it will be easier for landlords to recover pandemic-induced rent debt.

What are the main provisions of the Act?

The Act ringfences any rent debt owed by business tenants which accrued when their commercial premises were forced to close during the Coronavirus lockdowns and creates an arbitration scheme to enable landlords and tenants to resolve disputes relating to this debt. Under the scheme, the role of the arbitrator is to decide whether the tenant should pay the ringfenced rent debt and, if so, how much. The Act also prevents landlords from using pre-pandemic enforcement measures to recover the ringfenced debt and from initiating certain insolvency proceedings.

Now that these provisions have expired, tenants who have not already referred their disputes to arbitration under the Act will neither be protected from landlords’ enforcement measures nor able to obtain relief from payment under the arbitration scheme.

Can tenants rely on a legal ‘Covid defence’ in the absence of the Act?

The judgment handed down on 27 July in the cases of Bank of New York Mellon (International) Limited v Cine-UK Limited and London Trocadero (2015) LLP v Picturehouse Cinemas Limited and others would suggest that tenants cannot rely on such a defence. Both cases involved tenants of commercial premises being operated as cinemas and were dealt with by the Court of Appeal at the same time.

The tenants were appealing summary judgments made against them in the hope that they could avoid paying rent for periods during Covid when, due to Coronavirus Regulations, they could not lawfully operate their premises as cinemas.

The tenants made the following three arguments, all of which were unsuccessful:

the tenants could rely on provisions in the leases which allowed for rent to be suspended in certain circumstances. This argument failed on the basis that there was no physical damage to the premises and therefore the rent cesser provisions did not apply;
there was an implied term in the leases that the tenants should not be obliged to pay rent when they could not lawfully use the premises as cinemas. The Court of Appeal held that the implied term was not obvious and the leases worked perfectly well without it, therefore the tests for implication were not met;
the use of the premises as cinemas was fundamental to the leases, and since the premises could not be used as cinemas during the Coronavirus lockdowns, there had been a failure of basis and consideration. The Court of Appeal disagreed, holding that the leases were entered simply on the basis that rent would be paid in return for demise of the premises.

This judgment sets a clear precedent that the courts will not provide relief to tenants from payment of pandemic-induced rental arrears. If tenants would like to obtain such relief, they will have to negotiate with their landlords.

What remedies are now available to landlords seeking to recover pandemic rental arrears?

Landlords can now recover rent debts attributable to Coronavirus using pre-pandemic enforcement methods including:

making a debt claim in civil proceedings;
using the commercial rent arrears recovery power. This allows a landlord of commercial premises to take control of a tenant’s goods and sell them in order to recover an equivalent value to the rent arrears;
enforcing a right of re-entry or forfeiture. The landlord can end the lease by either peaceably re-entering the property or by commencing court proceedings; and
using a tenant’s deposit.

Landlords may also present winding-up petitions (where the tenant is a company) or bankruptcy petitions (where the tenant is an individual) in a last resort attempt to recover some or all of the previously ringfenced rent debt.

If you wish to discuss this topic or any other commercial property law matter, please contact our team at piersmeadows@meadowsryan.com , victoriasawyer@meadowsryan.com or 01932 852 057.