The Government has announced that new legislation will be introduced in this Parliamentary session to ring-fence outstanding commercial rent arrears built up by tenants due to the COVID-19 pandemic and to introduce measures to guide tenants and landlords to come to an agreement on how to deal with the money owed, either by waiving some of the total amount or agreeing a longer-term repayment plan. If agreement cannot be reached, the new legislation will put in place an arbitration process to make a formal award that will be legally binding and must be adhered to by both parties.
Until these new rules come into force the existing measures to protect commercial tenants from eviction will be extended from 30 June 2021 to 25 March 2022. The Government has also extended the restrictions on landlords using Commercial Rent Arrears Recovery (CRAR) to recover unpaid rent to 25 March 2022 as well, which increased the total number of days’ outstanding rent required for CRAR to be used to 544 days. Statutory demands and winding up petitions will also remain restricted for a further 3 months until September to protect tenants from enforcement action where their debts relate to the COVID-19 pandemic. The extensions will apply to all businesses, but the new measures introduced by legislation will only cover those businesses impacted by closures. This means that rent arrears accumulated before March 2020 and after the date when relevant restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protections are lifted. There is no restriction introduced on landlords suing for rent arrears as a simple debt claim.
The Government’s announcement will come as a surprise and significant disappointment to landlords, especially those who will have engaged proactively to seek a joint approach to navigate the effects of the COVID-19 pandemic but have met with tenants simply refusing to pay or using the existing measures as an opportunity to seek to restructure their lease obligations. The announcement is likely to be seen as strongly pro- tenant and there will be concern amongst landlords that by continuing the existing measures for a further 9 months it will do nothing to unlock the stalemate or allow the market to recover. Further, by applying the measures to different business sectors depending on the impact of closures, as opposed to a uniform application (like in the previous interventions), this is likely to create some confusion as to whether or not the measures apply to certain properties which could potentially cross different business sectors.
The announcement follows the Government’s call for evidence which sought views on how the commercial real estate sector should move forward from the COVID-19 pandemic, and it is expected a formal response will be published in due course. The Government has also reiterated its intention to review landlord and tenant legislation relating to the commercial property sector later this year to consider a broad range of matters including Part II of the Landlord and Tenant Act 1954 (security of tenure), different models of rent payment and an analysis of the COVID-19 pandemic on the market. We will provide further updates when the Government publishes its proposals.
For further information on the Government’s announcement, please view the press statement.
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