What is the latest on business tenancies as we emerge from the Coronavirus lock-down?

In my 20 May blog post I looked at the options potentially available to commercial landlords when dealing with tenants who were already in default prior to the enforced closure of businesses brought about by Covid-19. In this post, I address two things. First, given how fast-moving events have been in legislative terms over the past couple of months, I seek to update the position in relation to the emergency measures introduced by the Coronavirus Act 2020 (CVA), which is particularly relevant given the recent 24 June Quarter Day. Secondly, I update information to take into account the enactment in the past few days of the Corporate Insolvency and Governance Act 2020 (CIGA).

Business tenancies - update

As we saw in my previous blog post, the protections from eviction for business tenants afforded by the CVA depended on how long the ‘Relevant Period’ was going to last.  The date on which those CVA provisions were going to end expired last week, on 30 June, no doubt timed to expire after the June Quarter Day.  As I predicted last time around, this has now been increased, in England and Wales, by a further three months to 30 September 2020, courtesy of further secondary legislation introduced by the UK Government.  The ‘Relevant Period’ may yet be extended still further. 

What is clear from this measure, as well as other steps taken by the Government to which I shall return below, is that there is a re-doubling of efforts to ensure that everything reasonably necessary is done to give a further breathing space to businesses turned upside down by the restrictions introduced to curb the spread of the coronavirus disease.  All existing and new possession proceedings, as well as other actions in court to enforce orders for possession, will remain stayed for the time being and further amendments to the court rules have been introduced to carry this into effect. 

Insolvency measures

The new CIGA, which came into force on 26 June 2020, acts to further extend restrictions on landlords using insolvency process as a means to recover rent.  Statutory demands, which are official demands in writing to recover debts, that are issued against debtor companies (the Debtor) between 1 March 2020 and the now-extended date of 30 September 2020, cannot form the basis of a winding-up petition against the Debtor that was presented at any point after 27 April 2020 and it would be utterly futile to take such a step.

Similarly, winding-up petitions cannot successfully be presented against the Debtor between 27 April 2020 and the extended date of 30 September 2020 where Covid-19 has had a financial effect on the Debtor (the ‘first limb’), unless it can be shown that the Debtor would be unable to pay its debts irrespective of Covid-19 (the ‘second limb’).  I expect the vast majority of businesses will be able to satisfy the first limb of that test and demonstrate deleterious effects caused by the coronavirus, although some may even have benefitted, for instance those trading predominantly in e-commerce, and so the Court may have to weigh positive and negative effects in order to reach a decision on this provision, though, whatever the position, it seems that this is likely to prove to be a difficult hurdle to surmount for any creditor contemplating action on that basis.  Companies which become more insolvent by reason of the coronavirus (the ‘second limb’) may still be pursued from 1 October, subject to that date being further extended.  This provides at least some comfort to creditors faced with chronic payers who they were intending to move against before the onset of the pandemic.

So, what should you be doing?

Terms of leases can differ quite significantly, depending on the circumstances and the parties in each case.  Even if parties are not inclined to initiate discussions at this stage, I would strongly recommend that they take the opportunity to review the terms of their leases (as well as any ancillary documents such as rent deposit deeds and those prepared for the purpose of any assignments) to remind themselves of the options that may be available to the parties and to decide what is likely to be the best approach for them.  On the frequently good principle that ‘a stitch in time saves nine’, we would strongly recommend that you seek legal advice on your options and with drafting any paperwork necessary to put into effect your chosen option.  We are also more than happy to provide assistance and representation in any discussions with your counterparty.