We recently posted an update on Government measures to prevent Landlords from forfeiting leases and evicting Tenants by reason of non-payment of rent during the Covid-19 Lockdown period i.e., that is non-payment of rent (or sums described in the lease as ‘rent’) until 30th June 2020. The measure gave protection to tenants against eviction but as anticipated in our update, Landlords have used insolvency proceedings to force Tenants to pay under pain of bankruptcy/liquidation.

The Government has now introduced emergency measures temporarily to ban the use of Statutory Demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April to 30 June, “where the company’s inability to pay is the result of COVID-19″. This is not simply for lease claims but for all claims.

The Statutory Demand is a preliminary demand upon a Debtor for payment within 21 days. Failure to pay raises a presumption that the Debtor cannot pay their debts as they fall due and is accordingly insolvent, easing proof of insolvency in the subsequent bankruptcy or winding-up petition. This is a mandatory procedure before a bankruptcy petition.

Companies do not have such luxury. Creditors can move directly to the Winding Up Petition. Once the Petition is served, the Creditor can advertise it -the threat of advertisement (which causes the bank to freeze its accounts and brings about the inevitable downfall) proves persuasive. In short, the Winding-Up Petition is a forceful and effective method of debt collection, particularly when the debt is unsecured. It is usually the case that the unsecured creditors are usually the last in the pecking order and receive nothing in the final outcome. He who shouts loudest gets paid.

The Government measures introduced on Monday 27th April mean that Winding-Up Petitions will not be issued without a preliminary check by the Court that the lack of liquidity is not due to Covid-19. The Landlord of a Pizza Express outlet, Grainrent Limited issued its Petition on Friday 24th April ahead of the new measures and a hearing is to take place in June. The more difficult assessment for the Court will be whether a company facing a Petition was in fact insolvent before the Covid-19 lockdown.

It is not news that high street Tenants have sought to drive down rents using Company Voluntary Arrangements where Landlords are forced to take a cut in rent by reason of creditors’ general acceptance to take a proportion of debt owed to them and allow the company to trade out of its insolvency. Better the unsecured creditors take that than get nothing.

What the Government measures do is give companies in trouble time. The debt to the Landlord is not extinguished by the Government measures but companies knowing that the Landlord’s ‘Sword of Damocles’ will eventually fall, will seek CVAs.

In the meantime:

• Landlords have joined together in a collective called the Landlords Union, to lobby the Government to change tack on its rescue plan for the high street and the broader private sector. The group of 30 property investors say that tenants have been given carte blanche to withhold rents, choking off their main source of income. These investors say that in effect they have been asked to provide a financial backstop for huge swathes of the economy.

• Next Plc has indicated that it will seek rent cuts of about 40% on 53 stores with leases due for renewal in the year ahead.

• Mike Ashley has for some time campaigned for rents to be calculated by reference to turnover, thereby requiring the Landlord to share the commercial risk of the business with the Tenant.

• On 21 April, John Lewis Chairman Sharon White, included in their trading statement on the London Stock Exchange, that they have had to close all 50 John Lewis Stores due to Lockdown. Their intention is to negotiate with landlords regarding rent relief, including an immediate switch from quarterly to monthly payments.

Property has long been the mainstay of the British economy. In the light of the changes sought by the high street, how will property be valued. Traditionally value has been determined by yield, £ per square foot, but if the yield is determined by the ever-fluctuating turnover of the Tenant’s business, there is no fixed multiplier and comparison calculations will no longer apply. Rent reviews may take place at least annually. A Landlord may wish to include other factors such as development potential. However, if yield falls, the capital value may well follow.

It is not now whether Tenants will survive but whether Landlords will also fall. This has major consequences. Large commercial Landlords quoted on the Stock Exchange and property portfolios form part of your everyday pension fund.

We act for both Landlords and Tenants. We can advise Tenants on their relative positions before and during lockdown and what options are available against an aggressive Landlord.

For Landlords, we can review your review your property documents, rent deposit deeds; and your arrangements with guarantors.

The Government has urged parties to be pro-active in resolving their disputes. Failure or resistance to meet the Government’s expectancy may be useful argument in the disposal of costs in court proceedings. At the same time, the journey to resolution of disputes should be taken with legal advice.

If you are facing these issues, we can assist. Contact us on