Receivership during the COVID-19 era: What the evolution of covid legislation signals

By -

Daniel Richardson - Partner CG&Co

After two long years, the ban on commercial evictions has now lifted.

Those restraints that were placed on commercial landlords’ ability to recover outstanding rents when the pandemic commenced have finally been removed.

But the advent of new legislation resolutely requires lenders to continue taking the most proactive approach to default loans at the earliest possible opportunity.

Before I explain why, let’s briefly recap on the circumstances that have led to this point…

When the pandemic hit in March 2020, the government introduced restrictions which directly affected commercial landlords’ remedies for the recovery of unpaid rent from tenants.

This included Section 82 of the Coronavirus Act 2020 which prevented any forfeiture – whether by proceedings or peaceable re-entry – of the vast majority of commercial leases for non-payment of any sums due under the lease.

This was originally due to run between March 26, 2020, and June 30, 2021.

But the government announced on June 16, 2021 – just a fortnight before this was due to expire – that it intended to extend Section 82 until March 25, 2022.

Since the start of the pandemic, lenders, landlords and Property Receivers have had to be pragmatic following the government’s legislation and guidance.

Whenever we’ve been appointed by lenders to take recovery action, the first thing we’ve done is review every option at our disposal to maximise realisation for our lender clients.

We use every means at our disposal – from commercial deals and voluntary surrenders to new tenancy agreements – to achieve the best result for our appointing lenders.

Invariably, this has depended on each case’s individual circumstances and the ‘commercial situation’ that particular businesses have encountered.

But other factors will continue to require expert consideration as we move into the post-covid world.

Last November, the government published its new code of practice for commercial property relationships following the pandemic and draft legislation in the shape of the Commercial Rent (Coronavirus) Bill.

The new code sought to provide a process for parties to negotiate towards settling covid arrears before the new arbitration process comes into force.

It stated that, in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord will waive some – or all – of the rent arrears where they are able to do so.

For more information about the code, see here https://www.gov.uk/government/publications/commercial-rents-code-of-practice-november-2021

And then there’s the new Commercial Rent (Coronavirus) Bill to consider, which became legislation when Section 82 ended on March 25.

In short, this established a legally-binding arbitration process for commercial landlords and tenants who have not already reached an agreement, following the principles in the code of practice.

The bill will apply to commercial rent debts related to the mandated closure of certain businesses such as pubs, gyms and restaurants during the pandemic.

It’s important to state that debts accrued at other times will not be in scope.

These laws will come into force in England and Wales, and Northern Ireland will have a power in the bill to introduce similar legislation.

The result of the arbitration process will be a legally binding agreement that the landlord and tenant must adhere to.

And this – in turn – is intended to resolve rent arrears disputes and help the market return to normal as quickly as possible.

To conclude, it’s never been more essential for lenders to adopt the most proactive approach to property receivership as we move into the post-covid era.

What’s more, both commercial awareness and a truly pragmatic approach must be enshrined at the heart of the receivership process.

At CG&Co, our in-house legal team consistently monitors developments to provide our clients with a competitive advantage.

And it’s never been more important than it is now for lenders to ensure that their advantage is consistently maximised.