For the past several months, businesses across the country have grappled with the question of whether the pandemic and local “stay at home” or “shelter in place” orders aimed at curbing the spread of COVID-19 trigger force majeure clauses in their leases and other contracts. In one of the first cases to consider this question, the U.S. Bankruptcy Court for the Northern District of Illinois held in In re Hitz Restaurant Group that a restaurant tenant was entitled to a rent reduction under its force majeure clause due to Illinois Gov. J.B.

Whilst the government has taken significant steps to help protect businesses from collapsing as a result of the current pandemic, it is evident that companies across the board are acutely aware that such protection cannot last forever.

The landlord argued that the force majeure clause did not apply at all for three primary reasons. The Bankruptcy Court rejected each of the landlord’s arguments.

This advisory outlines the various options available to landlords after service of a statutory demand on a tenant and the tenant does not pay the debt. It also summarises the general processes, costs, advantages and disadvantages of each option. These options include:

Questions from a landlord's perspective

My Tenant has asked for a rent holiday. I want to help them out at this time - how can I facilitate this?

Most landlords and tenants are working well together to reach agreement in respect of rent, either moving rental payments to monthly rather than quarterly in advance, or deferring rental obligations for a specified period. It is obviously preferable, but not necessarily essential, to have such arrangements documented in writing, as follows:

• With tenant closures and lease defaults on the rise in the wake of the economic downturn caused by the COVID-19 pandemic, tenant bankruptcy filings are a major concern for landlords across the real estate industry.
• As courts of equity, bankruptcy courts not only consider the specific facts and circumstances of each case but also, because of the overriding goal of reorganization in bankruptcy, may subordinate other legal rights and policies.

In two recent decisions, the Federal Court has allowed administrators to continue to occupy leased premises rent-free for an extra month. Should landlords be worried that this trend will continue? Whilst the decisions were undoubtedly made in the extraordinary circumstances of COVID-19, it is not difficult to see a precedent being established with similar orders being made more frequently in the future.

The usual deal: Five free days

The Corporate Insolvency and Governance Bill was finally introduced to Parliament on 20 May. It is now clear that the provisions of the Bill relating to statutory demands and winding up petitions will apply to Scotland without the need for the Scottish Government to pass further legislation.

Statutory demands

1. Which financial (not tax or labour) short-term compensation schemes for immediate losses due to social distancing measures have been implemented? For which industries/sizes of business?

Deferred Loan Repayment

Long awaited insolvency reforms in the UK, plus the government’s COVID-19 proposals on the use of statutory demands – and much more

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