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Dealing with commercial rent arrears

For many businesses, commercial rent is a major expense.  The British Property Federation (“BPF”) estimated that, at the end of June 2021, approximately £7.5 billion of commercial rent was in arrears.

In response to the Coronavirus pandemic the Government introduced measures to help those businesses most affected by lockdown from recovery action in relation to unpaid rent.  Section 82 of the Coronavirus Act 2020 (“CA 2020”) prevents the landlord of commercial property from evicting a tenant for the non-payment of commercial rent, and this protection will continue until 25 March 2022.  Practically, this means that commercial tenants do not imminently face eviction or other legal action, by their landlord, to recover unpaid rent. 

It is important to remember that liability for such payments is not removed by Section 82 of the CA 2020.  The outstanding sums are still payable, which is likely to leave the commercial tenants at serious risk of legal action by their landlords when the moratorium ends.  So, what are the options for a business which is struggling to pay its rent?

Advice for businesses with rent arrears

If your company is experiencing financial difficulty as a result of Covid-19, it is important to seek advice from an Insolvency Practitioner as soon as possible.  Speaking to an Insolvency Practitioner does not necessarily mean that your company faces closure but dealing with concerns quickly is necessary to achieve a successful outcome.

It is also advisable to contact the landlord at an early stage and maintain communication.  By doing so, it shows that you are serious about addressing the arrears and could even result in you being able to negotiate a favourable repayment plan.

You should also consider the terms of your commercial lease.  If the lease contains a ‘break clause’, whereby either party can end the lease early, this could provide an opportunity to renegotiate the original terms. A notice period will apply in these circumstances but if you are considering scaling back, or closing down your business altogether, a break clause could be beneficial. In contrast, a break clause may allow the landlord to remove the tenant or market the property for sale if it is no longer required.

Company Voluntary Arrangement

A Company Voluntary Arrangement (“CVA”) is a legally binding agreement which can allow a viable business to repay its debts, in accordance with terms of a proposal which are agreed between the company itself, and the requisite majority of its creditors’.

A CVA can give your business breathing space and mitigate the effect which Covid-19 has had on cash flow.  Most importantly, a CVA can also be an effective way of dealing with commercial rent arrears, and the terms of your lease generally.  An Insolvency Practitioner can negotiate with your landlord on your behalf to ensure that all stakeholders have confidence in the process.

Creditors’ Voluntary Liquidation

CVL is the process of closing your company on a voluntary basis.  It is initiated by the directors and shareholders of a company having recognised that the company cannot pay its liabilities as they fall due.

It is usually deemed to be the most appropriate option when a company’s financial position has deteriorated to the point there is no prospect of recovery, or where the directors’ simply want to close the company and walk away.  Directors have a duty to act in the best interests of creditors at all times and ensure that the position does not worsen. 

How can we help?

Keywood Group is a Licenced Insolvency Practice, and our team has extensive experience in advising business on their options (both formal and non-formal).  Whether your company is struggling with commercial rent or other liabilities we can help you to review the position and put together a plan of action. 

Our Insolvency Practitioner is fully licenced and regulated by The Insolvency Practitioners Association, and our team provides transparent advice on all aspects of insolvency and company closure.  If you want further information, please contact us for a no obligation chat.

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