On 16 June 2021, the Government announced an extension of existing protection for commercial tenants. It also announced new measures to deal with the growing rent arrears on commercial properties.
The existing measures that are already in place to protect commercial tenants from being evicted from commercial properties has been extended from 30 June 2021 up to 25 March 2022.
Threat of eviction
This prevents commercial landlords from forfeiting leases because of rent arrears until after 25 March 2022. It is understood the objective behind this extension of time is to enable sectors of the economy that have been affected by restricted opening to have sufficient time to reach an agreement with their landlords to pay rent arrears without the threat of eviction.
Commercial Landlords can still forfeit leases for other breaches of the lease covenants. However, Landlords need to carefully consider the reasonable period to give Tenants to remedy those breaches which may be affected by the pandemic.
Winding up petitions
Commercial landlords are also prevented from presenting debt related winding up petitions, including rent arrears for a further three months until 30 September 2021. This protects companies from creditor enforcement action where those debts have been accrued because of the pandemic. A commercial Landlord can still present a debt related winding up petition but only if it has a reasonable ground to believe that the COVID-19 pandemic has not had any financial impact on that company.
The restrictions on CRAR or Commercial Rent Arrears Recovery, which would otherwise enable commercial landlords to seize goods to the value of the rent arrears will be extended until 25 March 2022.A commercial landlord will need to be owed a minimum of net unpaid rent of 554 days before CRAR can be exercised until 25 March 2022.
There is a new initiative which will only relate to rent arrears for businesses that have accrued those rent arrears because they have been forced to close due to the COVID-19 pandemic.Legislation will be introduced to ring-fence outstanding unpaid rent that has been built up when a business has had to remain closed because of the pandemic. Landlords will be expected to make allowances for this ring-fenced rent arrears and will be expected to share the financial impact of these rent arrears with their tenants. The Government also intend to introduce legislation to impose a legally binding arbitration process that will come into effect if the tenant and landlord are unable to negotiate a repayment plan for these ring-fenced rent arrears. This should encourage landlord and tenant to negotiate terms of repayment as if they do not, they will have to enter the binding arbitration process.
Protection for landlords
Landlords are being offered some protection, but this is limited. If a business can pay rent, it must do so.Tenants are expected to pay their rent as soon as restrictions allow them to reopen their business. Even with the new measure of ring-fencing arrears that will be subject to a binding arbitration process the protection offered to tenants is that this is a moratorium. Rent continues to accrue and will become payable. Landlords are prevented from utilising all their normal ways of getting rent paid during this moratorium, but the rent will be payable even though this may be at some time in the future.
Commercial landlords and tenants can contact Lisa Eastwood on 01708 463 215 if further advice is required.
This article was written by Lisa Eastwood, Senior Associate in our Commercial Property Litigation Team. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of June 2021.