We have had several enquiries over the last year or so from both commercial landlords and tenants in relation to the impact that the Covid-19 pandemic has had on commercial rent arrears.
So far the Government has sought to assist commercial tenants by introducing a voluntary Code of Practice in June 2020 for landlords and tenants to follow when negotiating rent arrears which have arisen as a result of the pandemic and by introducing a temporary moratorium preventing landlords from forfeiting leases (i.e. evicting tenants) due to non-payment of rent. This moratorium has repeatedly been extended and is now due to end on 25 March 2022.
On 4 August 2021, the Government released their policy paper on “supporting businesses with commercial rent debts”. This paper makes it clear that the Government intends to legislate to ringfence rent debt accrued during the pandemic by businesses affected by enforced closures. It is intended that this ringfenced rent debt will be the subject of negotiation between commercial landlords and tenants where it is expected that terms be agreed between landlords and tenants impacted by closures to defer or waive entirely an appropriate proportion of those rent arrears. If the parties cannot resolve matters by negotiation, they will be obliged to undergo a process of binding arbitration.
The voluntary Code of Practice introduced in June 2020 will also be revised and given legal force.
It is expected that the arbitration process will be one of last resort. Both parties will be expected to contribute to the cost of the arbitration if both are found to have negotiated in good faith. However, if any party is found not to have done, arbitrators will be empowered to award costs against them.
Advice to landlords:
- The proposed new legislation is not yet in force. Although there is currently a moratorium preventing forfeiture for non-payment of rent, you can still issue proceedings against your tenant for all rent arrears owing and obtain a money judgement against them. However, it should be borne in mind that this would not be within the spirit of the legislation and you could be penalised later on and/or a tenant may apply for a stay of proceedings pending the legislation coming into force.
- The proposed new legislation will only apply to rent arrears from the moment your commercial tenant’s sector was affected by the pandemic (likely to be March 2020 but will depend on the sector with hospitality and retail likely to be worst hit) to the point at which restrictions are lifted for their sector. Now that all restrictions have been lifted in England, your tenants should now be paying rent as normal.
- Consider which rent arrears will be ring-fenced and which will not. Seek to negotiate in good faith with your tenants in relation to those arrears likely to be ring-fenced but pursue those arrears which are clearly not.
- Do you still want to evict the tenant? If so, is the tenant in breach of any other provisions in the lease (which does not involve non-payment of rent)? If so, you can issue a section 146 notice and if the tenant fails to resolve matters, you can then forfeit the lease.
Advice to tenants:
- The policy paper talks about future legislation but this legislation is not in place as yet. You should note that the current moratorium preventing landlords from forfeiting leases (i.e. evicting tenants) for unpaid rent does not currently prevent commercial landlords from enforcing rent arrears in other ways such as by issuing proceedings at Court (although if they do so they could be penalised later on as it is not within the spirit of the proposed legislation). If your landlord does issue proceedings against you, it is worth considering applying for a stay of proceedings pending the legislation coming into force.
- The policy paper only applies to rent arrears accrued by enforced closures to premises from the date at which your sector was affected by restrictions until the date at which restrictions were lifted for your sector. You should ensure to begin paying rent again as per your lease from the point at which restrictions were lifted for your sector. You should clearly state in writing to your landlord how payments you make are to be treated and specify what period of time they apply to.
- You should seek to negotiate in good faith with your landlord about the ring-fenced rent arrears and pay if you can.
A link to the Government’s policy paper is at: https://www.gov.uk/government/publications/resolving-commercial-rent-arrears-accumulated-due-to-covid-19/supporting-businesses-with-commercial-rent-debts-policy-statement
If you have any questions about the above or require assistance with any matters relating to a commercial lease dispute, please feel free to contact Stephanie Rushfirth at email@example.com or 01527 831691.