The government consultation: Commercial property and rent arrears through the pandemic
As legal restrictions on the recovery of commercial rent arrears continue, the government has launched a consultation on whether to extend, remove or replace the measures.
During the pandemic, emergency legislation was put into place to protect commercial tenants who were struggling to survive because of lockdowns and downturns in their businesses. While this has undoubtedly protected tenants, it has left landlords in a difficult position.
Forfeiture of commercial leases for non-payment of rent has been temporarily halted, until 30 June 2021 at the earliest, with a suggestion that further steps will be implemented from 1 July 2021.
The moratorium includes action in respect of unpaid rent and any other sums payable under the lease and prohibits re-entry following proceedings or peaceably on the grounds of forfeiture.
Rent and other sums will continue to accrue and be payable, along with interest, and the landlord’s right to claim a breach of the commercial lease terms remains, meaning that when the moratorium ends, the landlord will have a right to forfeit the lease at that point.
A stay on possession proceedings was in place until 20 September 2020, however, landlords are not yet able to bring forfeiture proceedings for arrears that have arisen since 25 March 2020.
Options for recovery of commercial rent arrears suggested in government consultation
On 6 April 2021, the government published a consultation asking for responses to six suggested options on future measures following the end of the current restrictions on 30 June 2021.
It asked for the views of those affected and concerned by the restrictions. The following points were open for consideration:
1. Letting the current restrictions expire on 30 June 2021
This would simply allow landlords to use the legislation and rent recovery methods that they were entitled to before the restrictions, such as the Commercial Rent Arrears Recovery (CRAR) procedure, statutory demands, winding-up petitions and forfeiture of leases.
2. Extending the restrictions on insolvency and the CRAR process, but allowing the resumption of forfeiture
This would allow the possibility for a landlord to lawfully evict a tenant on the grounds of non-payment of rent, provided it complies with the terms of the lease.
3. Existing measures to continue on a temporary basis for businesses severely affected by the pandemic
This would require tenants to demonstrate the impact that the pandemic has had on their business and aim to protect those most at risk, such as tenants who had to close during lockdown. It would also seek to prevent abuse of the protections offered by requiring tenants to provide evidence of their difficulties.
4. Formal mediation between commercial landlords and tenants
A neutral mediator would be used to try and help the parties reach an agreement that is acceptable to both of them. The mediator would not impose a decision or settlement on them but would assist the parties to understand each other’s position and work together to find a solution that benefits them both.
5. Non-binding adjudication
An accredited adjudicator could put together a suggested settlement agreement in the light of the evidence in the case. It would not be binding on the parties, who could choose to reject it and resolve the issue in a different way, such as by court proceedings.
Options open to the adjudicator include:
· Adjusting the amount of rent payable in the future;
· Increasing the term of the lease;
· Reducing the term of the lease.
6. Binding adjudication
In this case, the parties would have to follow the decision of the adjudicator. A new law would have to specify the details, including the following points:
· A list of the sectors in which adjudication would be compulsory;
· The principles that the adjudicator must follow in hearing a case;
· The chance for those involved to submit evidence;
· Accreditation to allow private adjudicators to take on some of the work.
Either of the adjudication options are likely to be less popular with landlords, who would have the time and expense of submitting evidence when they are clearly already entitled to receive the arrears of rent.
It would also be a major departure from established landlord and tenant legislation with changes in commercial leases such as alteration of the lease terms, rent amounts and deposit deeds potentially raising legal difficulties.
The government is looking to avoid a ‘cliff-edge’ ending to restrictions that could see numerous evictions of commercial tenants. Commenting in the consultation, it said:
“Unless landlords and tenants are able to resolve these difficulties in a manner that enables businesses to return to viability as quickly as possible, the country risks further economic harm including the potential for this to contribute to higher levels of unemployment, particularly among young people….the eviction of tenant businesses that have the potential to return to viability will only act to further hollow out our places. Widespread vacancies in commercial property will only lead to premises becoming more difficult to re-let and values will continue to fall. This is not in the best interests of landlords, their tenant businesses, lenders, and investors, nor the economy as a whole.”
By phasing in powers to enforce arrears and encouraging mediation, it is clearly hoped to avoid extensive damage to businesses that could return to profitability.
Get in touch with us
At Lincoln & Rowe, we understand the importance of helping our clients keep their businesses running smoothly. We have extensive experience in dealing with contract difficulties across a range of sectors.
We can also work with you to put the right contract documentation in place for future transactions to ensure that your business has a solid legal foundation. We were named as the ‘Commercial Disputes Specialists of the Year’ in the Corporate Livewire Innovation & Excellent Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards.
If you would like to talk to one of our expert legal team about a contract dispute, call us on 020 3968 6030, email us at firstname.lastname@example.org or fill in our contact form and we’ll be happy to help.
The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.