On 16 June the Government announced its intention to extend and expand upon the existing protective measures for tenants of commercial property implemented in response to the pandemic.
Of particular interest to commercial landlords will be:
1. The Government’s intention to introduce new legislation (in this parliamentary session) to “…ringfence outstanding unpaid rent that has built up when a business has had to remain closed during the pandemic…” (Eviction protection extended for businesses most in need - GOV.UK (www.gov.uk)). The Government’s position is that landlords and tenants should continue to seek to resolve these debts through negotiation (such as by agreeing long-term repayment plans or the waiver of some of these rent arrears). As a backstop, in case negotiations are not successful, the legislation will provide for landlords and tenants to enter into a binding arbitration process.
This is a fairly radical proposal, and reflects the Government’s indication that it expects landlords to share the financial impact of specific periods of closure during the pandemic with their tenants.
The Government’s press release states that:
“…the new measures that will be introduced by primary legislation will only cover those impacted by closures. This means that rent debt accumulated before March 2020 and after the date when relevant sector restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protection measures are lifted.
The arbitration process will be delivered by private arbitrators but in accordance with guidelines which we will set out in the legislation, and they will have to go through an approval process to prove their impartiality.” (see the link above).
Whilst we await the publication of the draft bill many questions remain, including the extent to which the legislation will “ringfence” the rent arrears concerned, how the proposed arbitration process will work and how “those impacted by closures” should be distinguished from those who were not impacted by closures.
Until the proposed legislation is on the statute book the Government intends to keep existing protective measures for commercial tenants in place, including by extending the current moratorium in relation to forfeiture based on rent arrears (see below).
2. The extension of restrictions on the forfeiture of business tenancies based on rent arrears by nine months to 25 March 2022. These restrictions have already been extended by three month periods on various occasions, but a further nine month extension will be a particular blow to commercial landlords that had hoped to be able to recover possession of premises via forfeiture based on rent arrears after 30 June 2021.
For those landlords it is worth remembering that the current restrictions only apply to forfeiture for non-payment of rent and landlords can still forfeit for other breaches of lease (provided that the usual requirements, including the service of a section 146 notice beforehand, are complied with).
3. The extension of restrictions on commercial rent arrears recovery (CRAR) by nine months to 25 March 2022 (it is worth noting, however, that the total number of days’ outstanding rent required to exercise CRAR will remain at 554 days); and
4. The extension of restrictions on statutory demands and winding up petitions by three months to 30 September 2021.
We will provide a further update once the draft bill is published. Please note that the position regarding the above may differ outside of England.
If you would like to discuss this topic in more detail, please contact Aimee Cottam, Senior Associate, or Mark Robertson, Partner.