The government has temporarily banned commercial property landlords from issuing statutory demands and winding-up petitions against companies unable to pay amounts owed due to coronavirus.
The government noted the majority of landlords and tenants are “working well together” to reach agreements on debt obligations, but said that “some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics”.
Under these measures, any winding-up petition that claims the company is unable to pay its debts must first be reviewed by the court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of COVID-19.
The new legislation will be in force until 30 June, and may be extended in line with the moratorium on commercial lease forfeiture.
Landlords will also be prevented from using commercial rent arrears recovery unless they are owed 90 days of unpaid rent.
The measures will be included in the Corporate Insolvency and Governance Bill, which business secretary Alok Sharma set out earlier this month.
The government said the temporary emergency measures are “designed to acknowledge the pressures landlords are facing while encouraging cooperation in the spirit of fair commercial practice”.
It also called on tenants to pay rent “where they can afford it” in recognition of the “strains felt by commercial landlords too”.
Sharma said: “Our unprecedented package of support can help commercial landlords, including through the recent expansion of the Coronavirus Business Interruption Loans Scheme.
“I know that like all businesses they are under pressure, but I would urge them to show forbearance to their tenants. I am also taking steps to ensure the minority of landlords using aggressive tactics to collect their rents can no longer do so while the Covid-19 emergency continues.”
Communities secretary Robert Jenrick said: “We understand that landlords are facing their own very serious pressures and are concerned about their position with lenders.
“We are working with banks and investors to seek ways to address these issues and guide the whole sector through the pandemic.”
Kate Nicholls, chief executive of trade association UKHospitality, said: “Many businesses in our sector have no revenue whatsoever coming in, so paying rents has been out of the question for some.
“This extra space will allow businesses to survive and to find a way to work with landlords. If social distancing measures are to be in place for some time, as we now believe they will, this measure may need to be extended to ensure that businesses can survive.”
It comes as a growing number of landlords had been gearing up to take legal action against tenants, in a bid to recover rents owed during the lockdown period.
Vivienne King, chief executive of Revo, acknowledged the “severe pressure” on both retailers and property owners but outlined fears that these measures will be exploited by well-capitalised businesses.
She said: “We know most owners and occupiers are taking the pragmatic view and working together in a constructive dialogue about rent obligations.
“However, the moratorium on evictions, while well-intended, has been exploited by some well-capitalised businesses as a rent holiday. A moratorium on winding up petitions and statutory demands removes the incentive of last resort for property owners and there is every reason to fear it will also be used in the same way.
“We urgently call on government to disabuse this misinterpretation and instead, back the proposal offered by Revo, the BPF and the BRC to underwrite rents in support of retailers, property owners and their lenders through what is a desperate time for the high street.”
Andy Pyle, UK head of real estate at KPMG, said the measures may unintentionally result in fewer rental payments at June’s quarterly rent day, highlighting the need to consider the proposed Rent Support Furlough scheme.
“While there have been some instances of businesses facing such pressure from landlords, in some cases this has been because tenants haven’t been prepared to engage or discuss their position” said Pyle.
“There is a vital need for landlords and their customers or occupants to work collaboratively during this pandemic. Indeed, that is what the government and society at large is calling for.
“There are always going to be instances of occupants choosing not to pay rather than being unable to, but that should be an exception rather than the rule.”
Melanie Leech, chief executive of the British Property Federation, said: “No business in genuine distress as a result of coronavirus and struggling to meet their contractual obligations, including rent, should have anything to fear from engaging constructively with their landlords.
“Alongside extending additional protection to tenants, the government should be robust in encouraging landlords and tenants to work together and making clear that those businesses who are able to meet their liabilities should do so, for the long-term health of the complex funding ecosystem underpinning the UK’s economy.”
The ban also raises question marks over the future of major landlords including intu, which last month said it would need to seek covenant waivers to absorb the impact of coronavirus on rental income.
See also: Rental support scheme essential to save high streets
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