Covid-19: What enforcement options does a landlord have in NI?


Can landlords forfeit a lease for non-payment of rent? What are a landlord’s other options?

Covid-19: What enforcement options does a landlord have in NI?

Transcription

Alexandra Holsgrove-Jones:

Welcome to another of our TLT taster sessions on current issues affecting the real estate sector. I'm Alexandra Holsgrove-Jones, senior professional support lawyer in TLT's Real Estate Group. I'm joined today by Fergal Maguire, Partner in TLT's Northern Ireland's litigation team.

Alexandra Holsgrove-Jones:

The coronavirus pandemic has left many businesses struggling. In our TLT taster session on Varying Leases: avoiding the pitfalls, we mentioned varying leases to document changes in rental payment terms and rent-free periods. But what if the landlord hasn't agreed to a rent-free period or a rent deferment and the tenant simply hasn't paid it's rent? In Northern Ireland, can the landlord forfeit the lease? Fergal?

Fergal Maguire:

Thanks, Alexandra. Well, yes. In Northern Ireland, as in England and Wales, in order for a landlord to have a right to forfeit the lease for breach of covenant, that right has to be expressly set out in the lease. A right of forfeiture or re-entry is a normal term in a commercial lease. Therefore, in the ordinary course of things, if a tenant doesn't pay its rent, the landlord would have the option to commence forfeiture proceedings, but as we will all appreciate, these are not normal times.

Fergal Maguire:

So, the Coronavirus Act 2020 extends to Northern Ireland as well and it's suspended landlords' forfeiture rights for non-payment of rent. The current suspension in Northern Ireland is in place until the 31st of December 2020, and effectively this means that a landlord cannot forfeit a lease for non-payment of rent until after that deadline has expired.

Fergal Maguire:

But I think it's important to point out that we very much feel that it is entirely possible that this suspension to a landlord's right to forfeit the lease for non-payment of rent will be extended by the NI Executive well into 2021. We haven't got any advance notice of that, of course, but we anticipate that might happen.

Alexandra Holsgrove-Jones:

Is forfeiture always the best option anyway?

Fergal Maguire:

Yeah, that's a good question because there might not actually be any benefit to the landlord taking back possession of the premises, especially in the current market. One has to ask, would the landlord be able to re-let the premises anyway? The landlord may find that it is just left with a vacant property with all of the associated costs and risks, such as squatters taking possession, that that entails. If the landlord does decide to take back possession or its able to agree a voluntary surrender, for example, from the tenant, it should perhaps consider whether or not they have a dilapidations claim against the tenant of their repairing, decoration and yielding up provisions of the lease.

Alexandra Holsgrove-Jones:

What options does the landlord have if the tenant hasn't paid its rent?

Fergal Maguire:

Yes, there are still a few things that allow the Lord can do. So if there is a rent deposit, the landlord control on that, how many months rent are covered by the rent deposit will vary. So it may not cover all of the rent that has fallen due. If there is a guarantor, the landlord could pursue them for the unpaid rent. Depending on the terms of the guarantee, however, there will be deadlines on the prescribed way, perhaps of demanding rent from a guarantor. So the landlord should take legal advice, so it doesn't miss an opportunity to do this.

Fergal Maguire:

There is still the possibility, of course, for landlords to begin court action for recovery of rent, as there are no such reliefs against such actions at the moment. At the level of rent, there's more than £3,000 in Northern Ireland, then the appropriate court would be the county Court. However, unfortunately, this is a slow and costly route and you can only claim for the debt of the date of issue, so any more debt that continues to accrue while the proceedings are in progress are not included. Just finally, to note that if the rent arrears are above £30,000, you're forum would be the High Court.

Alexandra Holsgrove-Jones:

Thanks, Fergal. Could the landlord present a winding-up petition?

Fergal Maguire:

So since the 1st of March, landlords have been prevented from presenting winding-up petitions based on a tenant's inability to pay its debts. Unless the landlord has reasonable grounds for believing that COVID-19 has not had a financial effect on the tenant, or the landlord is able to assert that the debt issues would have arisen anyway, this ban on presenting winding-up petitions runs to the end of this year. Again, in our view, in Northern Ireland it is not unlikely that this ban will be extended them to 2021.

Fergal Maguire:

As to being able to show that COVID-19 has not had a financial impact on the tenant, that is in most cases going to be very difficult. We suggest, in any event, the Northern Ireland Bankruptcy Master is not currently accepting any credit or winding up petitions or bankruptcy petitions. At the moment, unfortunately, there's just no guidance to suggest when Master Kelly will begin to accept these petitions again. The current guidance out there suggests the court may begin dealing with existing petitions in the near future, but no news or new business just yet.

Alexandra Holsgrove-Jones:

And the Coronavirus Act has suspended a landlord's right to forfeit a lease for nonpayment of rent. How do landlords still pursue possession proceedings for other breaches of the lease?

Fergal Maguire:

In short, yes. The Coronavirus Act prevented landlords in England, Wales from taking possession proceedings in respect of any other breaches of a commercial lease during the pandemic, but this did not apply to Northern Ireland. So, a landlord has always been able to pursue possession proceedings for other breaches of a lease since March 2020. But we have to bear in mind the current slowdown of court work both in the county court and High Court in Northern Ireland. So, if a landlord wanted to pursue this option, again, it will be slow and costly.

Alexandra Holsgrove-Jones:

So what is the best course of action for landlords who are struggling to get tenants to make those rental payments?

Fergal Maguire:

Yes, well, as we discussed earlier, a landlord could pursue a claim in the County court or High Court and seek a money judgment for non-payment of rent. However, this will take time and involve costs to the landlord and won't always necessarily result in payment. Given the current backlog in claims, it wouldn't be a quick means of obtaining payment either.

Fergal Maguire:

In my view, the best option is for landlords and tenants to communicate with one another. It's important to try and establish why a tenant is unable to pay its rent; try to come to some sort of arrangement with the tenant, be it a rent reduction, a change to turnover rent, a rent referral, or something similar because that's more likely to be productive than taking a confrontational approach.

Fergal Maguire:

It's also important to know, I think, that in June 2020 the Ministry of Housing, Communities and Local Government did publish a Code of Practice for commercial property relationships during the pandemic. The aim of the code is to encourage businesses to come together to negotiate affordable rental agreements and to come to a mutually beneficial agreement. With the current backlog in litigation in Northern Ireland, I wholeheartedly recommend that approach.

Alexandra Holsgrove-Jones:

Thank you, Fergal. Hopefully, that's provided viewers with some detail on the key points that they should be thinking about. Thank you for joining us. If you have any questions on the issues raised, please do get in touch. You can also sign up for other TLT taster sessions.

 

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