COVID-19: Tenant stopped paying the rent?  Letting landlords leverage subletters…

It has been reported that a week after the March quarter day, UK landlords had collected just 57% of the rent they were due for that quarter, compared to 90% for the same period in 2019*.

Whilst the Coronavirus Act 2020 places a freeze on the forfeiture of business leases until 30 June 2020 where tenants have not paid their rent, there are other remedies that may be available to a landlord.

Landlords will most commonly first look to any guarantors that are liable to pay the rent where the tenant has defaulted and to any rent deposits that are being held.

A debt claim and the right to exercise CRAR (commercial rent arrears recovery), which is a statutory procedure that allows landlords of commercial premises to recover rent arrears by taking control of the tenant’s goods and selling them (previously the law of distress), are also potential options.

However, where commercial premises are sublet, one other avenue which landlords may not be aware of or which may not immediately come to mind, is the right to receive rent from a subtenant contained in section 81 of the Tribunals, Courts and Enforcement Act 2007.

This right applies where CRAR is exercisable by a landlord to recover rent due from its immediate tenant.  The landlord must follow the procedure set out in section 81 to give the subtenant notice of the outstanding amount of rent due from the immediate tenant.

When the notice takes effect (14 clear days after service of the notice on the subtenant), the right to recover and receive rent payable by the subtenant under its own sublease will be transferred to the landlord i.e. the rent payable under the sublease will be diverted and become payable directly to the landlord.

This right will end when the amount of rent that was outstanding from the tenant has been paid (by payments under the notice or otherwise) or when the notice is replaced or withdrawn.

For further questions in relation to the above article, please contact Amee Popat on [email protected] or 020 7822 2250.

* Research conducted by Remit Consulting, in conjunction with members of Remit Consulting’s Property Managers Forum, into rent collection levels across more than 18,350 properties in the office, industrial, retail and residential sectors during the first few days of April 2020.  The report received coverage in the Property Week magazine and in the Financial Times.

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