The moratorium on commercial evictions on the basis of rent arrears is not a new concept. We first discussed it shortly after the imposition of the first national lockdown in March 2020, before reporting on its extension in December 2020 to the end of March 2021.
With the vaccine rollout in full swing, coupled with the rosy economic forecasts recently published by the Bank of England, there are reasons to be optimistic. However, despite the Government vowing “not to do it again” when the moratorium was extended to the end of March 2021, the imposition of the third national lockdown may very well lead to a rethink. Indeed many believe that, come April 2021, relief will continue in some form but is likely to be differentiated by sector (i.e. retail, leisure and hospitality). In essence, this is likely to mean that moratorium-style restrictions on commercial landlords may very well be extended for certain sectors who may not be able to re-open, with the hospitality sector being the most obvious candidate. There are also calls to legislate to compel commercial landlords, possibly, to have to accept zero rent until some “normal level” of business resumes. Since the concept of “normal” is not yet known, it is likely that the situation will remain in a state of flux for some time to come.
It is for the above reasons that now is the time for commercial landlords to consider their options. We published an article towards the end of 2020 addressing a “number” of options that the commercial landlord may have and this discussion will focus on one of those options – namely rent recovery via debt claims.
Issue of debt proceedings against a tenant and/or any guarantor for rent recovery
At the time of writing, there are no restrictions on a commercial landlord’s ability to issue debt proceedings against their tenant and/or any named guarantor for arrears of rent. Indeed, burger brand, Five Guys, have recently had such a claim issued against them by their landlord, Criterion Capital. Provided the parties’ have not entered into any kind of concession agreement (that might otherwise compromise the landlord’s claim), a valid defence to such a debt may prove problematic for the tenant. This is because, contractually, the rent will fall due in accordance with the terms of the lease and that fact remains unaltered by the moratorium. The same considerations will apply to any guarantors under the lease, who may be equally culpable depending on the terms of the guarantee.
Moreover, provided the tenant is not entitled to any set off, deduction or counterclaim (which will be evident upon a review of the terms of the lease), the landlord (in the absence of a non-response, leading to a judgment in default) may be entitled to seek “summary judgment” under Part 24 of the Civil Procedure Rules (CPR) on the basis that the tenant has “no real prospect of successfully defending the claim” and “there is no other compelling reason why the case or issue should be disposed of at a trial”. Such a remedy could be advantageous for a number of reasons, least not that:
- A judgment in default and/or a successful application for summary judgment can be completed relatively inexpensively (although, be forewarned that, depending on the value of the claim, the Court fee could be significant);
- In the latter of the above scenarios (i.e. summary judgment), provided that the arrears exceed the small claims limited (currently of £10,000) costs usually “follow the event” meaning that, where the application is successful, the landlord will usually be awarded at least some of its costs which will then be payable by the tenant (and/or the guarantor, depending on the terms of the lease); and
- Where the application for summary judgment is unsuccessful, it is not uncommon (although it is by no means guaranteed) for the Court to order that the defendant (in this case, the tenant/guarantor) deposit the value of the claim (or a proportion thereof) into Court as “security” as a necessary condition on the tenant/guarantor asserting its right(s) to defend. This not only ensures that the judgment debt is ring-fenced in the event that the tenant/guarantor becomes insolvent, it also bolsters the recoverability position of the commercial landlord.
Upon a judgment being obtained either on a “default” (meaning that the tenant/guarantor simply doesn’t reply) and/or a “summary” basis (usually after a hearing, upon application) the commercial tenant or guarantor will be obligated to satisfy it within one month to prevent it from appearing on its credit file. This may be incentive enough for the commercial tenant/guarantor to settle its rental debt, since the judgment appearing on its credit file will have an impact upon its ability to raise credit in the future.
Even if the tenant or guarantor does not pay immediately, the landlord will have six years to “enforce” the judgment debt and may do so at any time via the County Court Sheriffs and/or the High Court Enforcement Officers. Such enforcement methods will be similar to those used under the Commercial Rent Arrears Recovery (CRAR) scheme (as against the tenant at least), but via the proceedings method the landlord circumvents the need to wait the current 366 days before CRAR can be activated.
How can Nelsons help?
For more information in relation to issuing debt proceedings against a tenant or guarantor for rent recovery in light of the moratorium on evictions or any related subjects, please contact a member of our expert Dispute Resolution team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online form.