Sheriffs to the Aid of Commercial Landlords

In the last week, there have been a smattering of cases where judges have agreed with Shergroup’s interpretation of the law – and that is commercial landlords can go ahead and sue their tenants for rent arrears and other charges arising under a lease.

We are pleased to see this as over the last 12 months we have spoken to many solicitors and landlords who have been looking for a remedy to help them and their businesses through the pandemic but have been too nervous to issue a simple money claim.

Instead, what we have seen is landlords and their advisors clinging to the hope that Commercial Rent Arrears Recovery will come back soon, along with forfeiture for non-payment of rent so that landlords can take swift action to deal with an arrears’s situation.  But alas the Government has continued to “kick the can down the road” on both these options and we think it will continue to do so well into the autumn.

The Government is understandably trying to get business back on its feet after a horrendous year for the UK high streets and hospitality sector.  We think this means the Government is still going to keep the CRAR and Forfeiture remedies at bay for as long as it can so that businesses can recover from the worst of the pandemic.

Enter the Writ of Control

The landlord community has for whatever reason not seen the chink in the Government’s armour of policy to prevent the recovery of commercial rent.

This ‘chink’ is the good old Writ of Control, which has served the business community well over the centuries (it was of course the Writ of Fieri Facias) before that.  We only remind you of the history because before CRAR was brought on the statute books in 2013 you may have used ‘distress’ as your go to remedy for the recovery of rent arrears.

But in the unprecedented times we now face, people must use the law as a tool to dig themselves out in the best way they can and of course without contravening any laws or policy rhetoric from Government.

So, we were pleased to see that the Westfield Shopping Centre picked up the ‘tool’ of a simple money claim and issued their proceedings against The Fragrance Shop for outstanding rent in £160,000 – see Commerz Realinvestmentgesellschaft mbh v TFS Stores Limited [2021] EWHC 863 (Ch)

The case came before Chief Chancery Master Marsh who decided that the landlord, Westfield, could indeed bring a simple money claim for the rent.  He reviewed the Coronavirus Regulations and agreed with Shergroup.  His judgment was that there was nothing in these measures to stop a landlord from suing for the rent, and service charges, and entering judgment.  Indeed, he squashed the whole case following a summary judgment application.

Hot on the heels of this decision, Master Dagnall, a Master in the Queen’s Bench Decision, came to a similar conclusion in cases against Sports Direct, Mecca Bingo and Cineworld.  He awarded the landlords summary judgment for their claims of unpaid rent against these well-known brand names.

The Fragrance Shop’s Defence

The basis of the tenant’s response and Defence to the landlord’s claim were in 3 key areas set out below.

Firstly, they responded to the landlord’s claim by saying that the landlord was in breach of the Government’s “Code of Practice for commercial property relationships during the COVID-19 pandemic”.  The Master found the Code to be no more than the Government’s view of “best practice” between landlords and tenants and was not binding on the landlord to prevent a claim being made.  The Master also found that in line with this best practice, the landlord had actually engaged in negotiations with the tenant to try and resolve the situation.

Secondly, the tenant pleaded that the landlord was in some way exploiting a “loophole” in the emergency coronavirus legislation which was passed by Parliament to protect tenants during the period of the pandemic from aggressive landlord action.  The Master found there was nothing in the Coronavirus Regulations which would fetter a landlord’s ability to use a money claim to sue for sums due.

And thirdly, and rather bizarrely the tenant pleaded that the Landlord’s insurance should respond to the Tenant’s loss of rent! (this seems to be a bit of a long shot to us!)

The Impact of These Decisions

We hope those of you in the Property118 community can see the impact that such decisions can have on the impasse for the non-collection of commercial rent.  It is clear from these decisions that the judges are not entertaining arguments that the Coronavirus Regulations offer commercial tenants a defence to non-payment of their lease obligations.

Chief Chancery Master Marsh saw this as a very simple situation and ordered in the full amount plus interest.  Interest will now run on that judgment at 8% per annum until payment as it is a High Court judgment.

The Likelihood of An Appeal

The spectre of an Appeal is always possible, but the Master was not prepared to give The Fragrance Shop the opportunity to revise their Defence.  Instead, their only way out of the Order made, is an Appeal.  They will need to tread carefully in taking a decision to Appeal as they could be in jeopardy on costs.  The wiser decision in our view would be to pay the rent and do a deal with their landlord!

Enforcement

If permission to appeal is not allowed, and a deal cannot be done between the parties, then then the landlord can push forward with enforcement of the judgment, and this is where the Writ of Control does the same job as the Commercial Rent Arrears Recovery (CRAR).  It gets a certificated enforcement agent to the premises of the debtor tenant with the power to seize the goods inside to create leverage in the landlord’s favour.

Here at Shergroup we are ready to pick up the challenge of helping landlords to attend at commercial property now, force entry if that is needed, and take the goods inside into legal control.   It is this action which forces a reluctant tenant to pay what is due.  The more important the goods are to the trading position of the tenant business be it stock, fixtures and fittings, computer system, plant and machinery, and vehicles, the odds increase of a payment.

Summing Up

Sheriffs (now High Court Enforcement Officers) have always been an option for landlords as part of their toolkit to manage their property portfolio.

We feel vindicated in our advice given to commercial landlords to push ahead with a claim despite the Coronavirus Regulations and then proceed to enforce any unpaid judgments using a Writ of Control.

Of course, landlords have not always found this advice palatable as they must pay the court fee to issue the claim upfront, but with a trading tenant, a landlord will recover the amount of the debt, court fees, costs, and interest.  The short-term hiccup of investing in the claim can be resolved by following the same approach of the reported cases mentioned in this article so that any Defence is knocked out in a summary judgment application.

With the Defence out of the way, and judgment entered for the full amount, a Writ of Control provides a simple and quick method of enforcement for any judgment over £600.  And of course, a Judgment Debtor under a Writ of Control pays the fees of the High Court Enforcement Officer.

And if this seemed an uncertain outcome two weeks ago, then the decisions of Masters of the High Court give us the judicial insight of senior judges on the problem of non-payment by commercial tenants during these difficult times.  Fortunately, the judgments are uncomplicated and straightforward.

The outcome for landlords is that they can move forward with much more confidence.  They can sue for their outstanding rent and other charges due under their commercial leases and junk advice which suggests they can’t.  These welcome decisions confirm they don’t inhibit a landlord to follow the plain and simple remedy of a money claim followed by a suitable enforcement choice if payment is still not forthcoming.

We certainly hope the log jam of unpaid commercial rent for landlords has been undone and the Sheriffs can step in to finish the process.

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