Real estate litigation – ban on evicting commercial tenants

The embargo on the eviction or liquidation of businesses that have not paid their rent has been in place for some time and was to remain so until June 30, 2021. The government has now extended this embargo until March 25 2022.

The exception was if you could show that COVID had no financial effect on the debtor tenant or that the business was unable to pay its debts regardless of the effect of COVID. Some judgments in petitions have been rendered on the basis of the exception; this clearly showed that it is extremely difficult to overcome this obstacle as an owner.

The government’s position now is that commercial tenants should pay rent and reiterates the position that commercial landlords and tenants should talk to each other to enable proper management of rent issues.

The announcement released on June 16, 2021 also explains that the government is considering passing new legislation to help settle the debt situation between business owners and tenants in an orderly fashion. The intention is that if negotiation does not resolve the issues, then there will be a binding arbitration process that will come into effect.

There is no obstacle to issuing a request for money for rent arrears and obtaining a judgment; however, the range of enforcement measures to try to obtain this payment continues to exclude the opening of liquidation proceedings and the forfeiture of the lease.

However, there is now a sort of conundrum for directors of limited companies who are commercial tenants and do not pay rent. Pre-Covid, if they allowed the company to continue trading when it could not pay its debts, they could be held personally liable for debts incurred during the period of illicit trade.

Emergency legislation temporarily suspended rules on illicit transactions by forcing a court to assume that a director is not responsible for the deterioration in a company’s financial position or its creditors first from March 1 2020 to September 30, 2020, then from November 26, 2020 to June 30, 2021.

However, the announcement does not mention any further extension of the suspension of personal liability for illicit transactions – and it seems that this is not just an oversight to be corrected in the coming days. If this is the case, then directors must assess the continuing personal risk of not reaching an agreement with the business owner.

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