Over the course of the pandemic, the rent arrears that many businesses have accrued might be considerable. Understandably, landlords are keen to recover the income owed to them and will undoubtedly explore all of the available options.
This raises the question, “Can such rent arrears owed by a business be recovered from a guarantor?” To answer this we must consider what the Commercial Rent (Coronavirus) Bill is meant to do; namely, to enable relief from payment of certain rent debts under business tenancies that were affected by COVID-19.
What does this mean for guarantors?
The Commercial Rent (Coronavirus) Bill refers to a tenant as a person who has guaranteed the obligations of the tenant under a business tenancy. Providing that the guarantor can come within this definition then the Commercial Rent (Coronavirus) Bill, once passed, will provide the guarantor with the same protection as the tenant. This article looks at this protection in more detail and some related issues.
What is a business tenancy or a protected rent debt?
For the purposes of the Commercial Rent (Coronavirus) Bill, a business tenancy will be deemed to be a tenancy that Part 2 of the Landlord and Tenant Act 1954 applies. Protected rent is rent that was due under the tenancy that was adversely affected by COVID-19 and within the protected period as defined under the Commercial Rent (Coronavirus) Bill. As such, a protected rent debt is a debt under a business tenancy that consists of unpaid protected rent. Landlords may not, during the moratorium period that applies to the protected debt, make a debt claim.
What if the debt claim is made before the Act is passed?
Then it would need to be considered against the temporary moratorium on enforcement of protected rent debts under the legislation.
If proceedings on a debt claim are:
- Made on or after 10 November 2021 but before the day on which the Act is passed;
- Is made by the landlord against the tenant; and
- Relates to (or debts include) the protected rent debt.
Then either of the parties to the business tenancy may apply to the Court for a stay to allow a resolution to occur. The Court on determining such an application falls within the ambit of the Act must stay such proceedings, upon an application being made.
What about company winding-up and bankruptcy petitions?
During the moratorium period for a protected rent debt, a landlord may not present a petition for a winding up of a company under section 124 of the Insolvency Act of 1986 (“the IA 1986”) on a ground within:
- Section 122(1)(f) in relation to a registered company; or
- Section 221(5)(b) in relation to an unregistered company.
In relation to a business tenancy, where the landlord is owed a protected rent debt and the tenant is an individual; the landlord may not present a petition for bankruptcy against the tenant (for any protected rent debt or claim for such debt that was issued during the relevant period) on a ground specified within:
- Section 268(1)(a) or (2); or
- Section 268(1)(b) of the IA 1986.
If a petition was presented under 1 or 2 above, the Court may restore the position as if the petition had not been presented.
What about bankruptcy orders made before the Act is passed?
Where a bankruptcy order was made on or after 10 November 2021 (against the tenant on a petition from the landlord), but before the day which the Act (notably Schedule 3) comes into force under section 267 of the IA 1986, and if Schedule 3 was in force the Court would not have made such an order; then:
- The Court is to be regarded as having had no power to make the order; and
- The Court may make such order or directions to restore the position to that prior to the petition being presented.
How can Nelsons help?
At Nelsons, our expert Property Disputes team in Derby, Leicester and Nottingham have extensive experience in a wide area of legal matters. If you require any legal assistance, please call us on 0800 024 1976 or alternatively contact us via our online enquiry form.
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