Covid-19 & Commercial Rents

15 April, 2021

The UK Government calls for evidence to answer the all-important question; what should happen after 30 June 2021?

Have your say on how to deal with the rent arrears build-up

 

The Government has now published a survey to ascertain the impact of the pandemic on commercial property rents and the arrears that have accrued. The evidence gathered will help the Government decide what steps to take after 30 June 2021, which is the date that the current restrictions on landlords’ remedies for non-payment of rent are due to end, and what might be the best way to withdraw, replace or exit from the measures in place.

Until 30 June 2021 there are restrictions on a landlord’s ability to forfeit a commercial lease, on the use of Commercial Rent Arrears Recovery (CRAR) and on a landlord’s ability to institute insolvency proceedings against a tenant (statutory demand and/or winding up petition).

Despite several extensions to these measures, the Government recognises that these measures cannot continue indefinitely and a carefully managed exit is necessary to protect property owners’ interests whilst at the same time preserving tenant businesses and the jobs that they support to bring the High Street back to life.

The information gathered will  help the Government understand how landlords and tenants are dealing with the build-up of rent arrears that have accrued for tenants whose businesses have been affected by the imposed lockdowns and this will inform Government policy going forwards and how (if at all) it should intervene further.

The Government seeks views from businesses; business representative organisations; commercial landlords, lenders, and investors and their representative organisations; commercial property professionals; and anyone with an interest in or connection to the commercial property market in England. The government is particularly interested in the views of small to medium sized businesses (SMEs) including small commercial landlords, independent businesses and sole traders with leased premises.

The survey will take respondents through the Government’s six options for possible next steps and requires respondents to provide evidence of how they have been affected financially by the current measures and how they consider the respective options will affect them.

The six options range from no further intervention to the negotiation between landlords and tenants, to a full-scale intervention by a mediator or adjudicator. It is not clear how such an intervention by a third party would work in practice or how effective it would be and why it would be necessary if parties have already been complying with the Government’s Code of Practice.

The options are as follows:-

  1. allow the current measures to expire on 30 June 2021
    This would allow landlords to pursue accumulated rent arrears by means of statutory demands and winding-up petitions, CRAR and eviction either through peaceable re-entry or via the courts. The reasoning behind this being that 15 months has been more than enough time to enable negotiations between landlords and tenants to take place. This option would allow the market to right itself.

  2. allow the moratorium on forfeiture to lapse on 30 June 2021 but retain the insolvency measures and additional rent arrears amendments to CRAR for a period of time
    This would allow landlords to evict tenants for non-payment of rent under the terms of their lease but not to use CRAR or serve winding up petitions or statutory demands. This would help landlords put their spaces to use if they are able to find a new occupier who can pay more.

  3. target existing measures to businesses based on the impact that COVID restrictions have had on their business for a limited period of time
    This would delay the lifting of protections for the tenant businesses most affected by Covid restrictions until they are back on their feet and able to make current and future rental payments.  This would target only those businesses who have suffered the most severe consequences of the pandemic (e.g. restaurants), whilst lifting existing measures for sectors (e.g. offices and industrial) that have not experienced mandated closure and are more likely to be able to meet their rental payments and who might have been abusing current protections.

  4. encourage increased formal mediation between landlords and tenants
    This would involve  a trained, neutral third party who will assist parties to come to and manage the settlement of their dispute.

  5. non-binding adjudication between landlords and tenants
    This would involve an adjudicator attempting to deal with the dispute. An independent adjudicator would propose a fair and sustainable settlement based upon evidence submitted to him/her by the parties but the decision of the adjudicator would not be binding. The survey sets out possible remedies that might be available to an adjudicator to include waiving of rent/service charges, additional time to pay, reset of future rent, extend/reduce term of lease, defer/waive obligations to replenish a rent deposit.

  6. binding non-judicial adjudication between landlords and tenants
    Similar to option 5 but this time the adjudicator’s decision would be binding. Both sides would submit an evidence-based proposal for settling rent arrears and the adjudicator would make a decision as to which proposal is adopted based on certain adjudication principles.

A link to the Government survey can be found here. The survey closes on 4 May 2021.