We all know the challenges which sectors such as hospitality and tourism have faced during the pandemic. While things are now improving, for some the upturn has come too late and for others the challenges posed by social distancing, home working and changes to leisure patterns are still posing real difficulties.
While public focus has frequently been on the shops, restaurants and cafes, behind most of them are landlords who rely on the rent for their commercial properties to run their own businesses. When tenants struggle to pay rent, the knock on consequences for their landlords can also be serious.
Often during the past eighteen months, landlords and tenants of commercial premises have been able to work together, formally or informally, agreeing rent reductions or rent holidays to keep tenants in place in anticipation of things improving. Often that will still be the best solution for landlords faced with a tenant who is struggling to pay their rent. However there are times when agreement may not be possible. Perhaps the tenant has no real prospect of recovery or the landlord’s own business is struggling without rental income. Perhaps negotiations have collapsed and parties are now in dispute. What are the landlord’s options then?
Prior to the pandemic, any landlord wishing to evict a tenant from a commercial property was required by law to serve a pre-irritancy warning notice giving the tenant at least 14 days to make payment of rent arrears. The lease could not be terminated or proceedings for recovery of the property raised until that 14 day period had expired without full payment having being made.
Schedule 7 of the Coronavirus (Scotland) Act 2020, however, changed the minimum notice period from 14 days to 14 weeks. This gave tenants a significantly longer period of time in which to make payment. For tenants facing large drops in income and huge economic uncertainty, this gave time to plan, reach agreements or obtain alternative finance. However where a tenant is ultimately unable to pay, a 14 week period will obviously add considerably to the landlord’s unpaid arrears.
The current position
Although the provisions were initially meant to expire in September 2020, they were extended to 31 March 2021 and thereafter to 30 September 2021. Further legislation has now been enacted which extends the 14 week notice period again, this time until 31 March 2022. When we reach next March the extension may well be tapered off rather than ending abruptly.
In some cases this will be a welcome relief for tenants, however it continues the difficulty faced by landlords who are struggling recover possession of their commercial properties in the face of mounting arrears. Court action to recover possession has seldom been a quick process but it now can’t begin for three and a half months.
At the beginning of the pandemic and during full lockdowns, providing tenants with a longer opportunity to improve their cash flow and make payment of rent may well have been a sensible commercial approach to take. However, given that we are now a year and a half into the pandemic, with furlough ending and economic growth returning, the commercial rational for allowing tenants such extended periods is surely more debatable.
Whilst every case is different, as a general rule landlords still experiencing difficulties collecting rent should not delay issuing a pre-irritancy notice where they may wish to recover possession. Negotiations can often continue after a notice has been served but at least the landlord then has a fall back plan if agreement cannot be reached. Whilst landlords may still often prefer to take a pragmatic approach with their existing tenants, the opening up of the economy will see prospective new tenants looking to lease premises and then the balance may start to swing in favour of positive action to recover possession and re-let.
Alternatives to irritancy
Winding-Up Petitions and Statutory Notices
Throughout the pandemic there have also been restrictions on the winding up of limited company tenants however liquidation will become more readily available again from 31 September 2021. In some cases this can offer Landlords an alternative route to pursue rent arrears and, potentially, recover possession, although the specific terms of the lease do require to be considered.
A Charge for Payment and Diligence
Landlords should also check whether their lease allows it to be registered in the Books of Council and Session for preservation and execution. If it does, it may possible to avoid a lengthy Court action for payment of rent and instead serve a Charge for Payment. This saves considerable time and may allow a landlord to carry out diligence such as bank arrestments or attachment of moveable property.
Although the process for removing a tenant from a commercial property is currently time consuming, there are options available for recovery of possession and payment of rent. We would encourage landlords to act now to see what options are available to them.
If you would like further information on the topic discussed in this blog, please contact either Rosie walker by email firstname.lastname@example.org or by phone: 0131 516 5374 / 07841 921 684 or Iain Grant by email: email@example.com or by phone: 0131 516 5375 / 07487 801 131. You can also view Iain’s profile by clicking here.
The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.