Tenants to receive further protection amid Coronavirus difficulties

In line with the various protective measures imposed by section 82 of the Coronavirus Act 2020, the Government has now issued a press release confirming that it will be introducing further emergency measures to protect commercial tenants by prohibiting the use of statutory demands and winding up petitions/orders by landlords.

The temporary ban will apply where a commercial tenant:

1. “cannot pay their bills”; and
2. the inability to pay is “due to coronavirus”.

As the issuing of a statutory demand is a unilateral act by one party, it would be difficult to prevent creditors from serving the statutory demand in the first place. It is likely that the protective measures will come into play prior to a winding-up petition being issued, with the Court at that stage reviewing whether the petition should be issued in light of these new protective measures.

The press release lacks precision and clarity with the draft legislation yet to be published. It therefore begs the question; what is meant by “cannot pay” and how  will it be decided whether this is “due to coronavirus”? With the vast majority of tenants experiencing a severe tightening of their cash flow, most tenants would be in a position to argue that their inability to pay is caused by coronavirus, even if they had some outstanding debts pre-coronavirus.

The Corporate Insolvency and Governance Bill has not yet been enacted, therefore for the time being there is no law to prevent landlords from issuing a statutory demand and a winding-up petition. Whilst the restrictions will probably be in force by the time a winding-up petition is actually heard, landlords are likely to continue to seek winding-up petitions with the surrounding publicity encouraging tenants to pay up, and the current lack of clarity making it difficult for tenants to assess whether or not the petition will be blocked following the introduction of the new protective measures.

About the author

Daniel Browne is an associate in the Real Estate and Construction team. Daniel advises both corporate and individual clients on a wide range of property matters.