What is the procedure for demanding payment of rent arrears owed by a current tenant from its guarantor? Does the Coronavirus Act 2020 affect making such a demand?

What is the procedure for demanding payment of rent arrears owed by a current tenant from its guarantor? Does the Coronavirus Act 2020 affect making such a demand?

Rent demand

The landlord should check the terms of the lease to see whether the obligation to pay rent is dependent on the provision of a formal rent demand and ensure that this is complied with. The terms of the guarantee and any pre-conditions prior to liability being triggered must also be checked.

There are further requirements in respect of long residential leases pursuant to section 166 of the Commonhold and Leasehold Reform Act 2002. A tenant under a long lease of a dwelling is not liable to make payment of rent under the lease unless the landlord has provided the tenant with a notice in the prescribed form. See Practice Note: Statutory limitations on the landlord’s right to forfeit a long residential lease.

Remedies

If rent arrears accrue, subject to liability having been triggered under the terms of guarantee, the remedies of court proceedings and serving a statutory demand may be deployed against any current guarantor of the tenant, as well as the tenant itself. For further information, see: Guarantees and AGAs for property disputes lawyers—overview.

Court proceedings

Assuming that the appropriate remedy in the circumstances is to issue court proceedings for unpaid rent, obtaining a judgment for unpaid rent will give the landlord access to all of the available methods for enforcement and recovery of the judgment debt, including for example attachment of earnings and a charging order. See: Introduction to enforcement—overview.

A claim may be made against the tenant or (subject to any pre-conditions in the guarantee) a current guarantor. Prior to issuing proceedings, the landlord should consider whether the Pre-Action Protocol for Debt Claims (the Protocol) will apply.

Debt recovery proceedings are not directly impacted on by the coronavirus (COVID-19) measures. However, take into account potential delays due to limited court opening and the backlog of claims.

Statutory demand

A statutory demand gives the tenant 21 days to pay the sums claimed, failing which, insolvency proceedings can be started (a bankruptcy or winding-up petition can be presented/issued). A demand can also be served on any other party liable for the outstanding sum, such as a guarantor (subject to any pre-conditions in the guarantee).

The coronavirus measures do not impact on service of a statutory demand on an individual.

However, under the Corporate Insolvency and Governance Act 2020 (CIGA 2020), there is a temporary prohibition on winding-up petitions—CIGA 2020 provides that a winding-up petition based on section 123(1)(a) of the Insolvency Act 1986 (IA 1986) (ie an unsatisfied statutory demand in respect of a debt exceeding £750) that relates to a statutory demand served on or after 1 March 2020 cannot be presented by a creditor during the period beginning on 27 April 2020 (it has retrospective effect) until 31 December 2020, unless the creditor has reasonable grounds for believing that (a) coronavirus has not had a financial effect on the debtor, or (b) the debtor would have been unable to pay its debts even if coronavirus had not had a financial effect on the debtor. For further reading, see News Analysis: Corporate Insolvency and Governance Bill—temporary changes to winding-up petitions. Accordingly, there is little tactical merit in serving a statutory demand without the ability to then present a winding up petition. A winding up petition can still be served if the creditor has reasonable grounds to believe that coronavirus has not had a financial effect on the debtor, although this may be difficult to evidence. Furthermore, it may be that in that situation the debtor may attempt to use the new moratorium procedure introduced into IA 1986 by CIGA 2020.

For further reading, see Practice Notes:

• Quick guide to landlord’s remedies for breach of lease

• Recovering rent arrears

• Coronavirus (COVID-19)—implications for property

• Quick guide to landlord’s coronavirus (COVID-19) remedies

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