Freeze on Commercial Forfeiture
This week, the government announced that it would extend the current moratorium on forfeiture of commercial leases for non-payment of rent until 25 March 2022, or such later date as may be specified.
Under this moratorium, “rent” is defined to include any amount payable under the lease and, taken literally, this applies to all payments required to be made by the tenant including service charge, insurance payments, utilities and so on.
The moratorium does not affect the ability of landlords to forfeit a commercial lease for other breaches of covenant, besides rent.
Ringfencing Rent Arrears
Alongside the freeze on commercial lease forfeiture, the Communities Secretary, Robert Jenrick, announced that legislation will be introduced to ringfence outstanding business rent that has had to build up while businesses have had to remain closed. Landlords are expected to make allowances for the ringfenced rent arrears from these specific periods of closure during the pandemic, and share the financial impact with their tenants.
The proposed legislation will help tenants and landlords come to an agreement on how to handle the money owed: for instance, by landlords agreeing to waive a percentage of total amounts owed or formulating a long-term repayment plan.
Where agreements between landlords and tenants cannot be reached, the proposed legislation significantly puts in a mandatory arbitration process that will make legally binding decisions in such disputes.
Kwasi Kwarteng, the Business Secretary, commented: “The new arbitration process will be underpinned by law, providing commercial tenants and landlords with peace of mind that Covid-19 related rent debts will be settled fairly, and with finality”.
Guidance So Far
While we are yet to see the text of any bill, the government’s comments have indicated that businesses who are able to pay rent must do so, and that tenants should start paying their rent as soon as restrictions change and are legally able to remain open and trade.
Steve Barclay, the chief secretary to the Treasury, told parliament on Wednesday that “we believe this strikes the right balance between protecting landlords and supporting those businesses that are most in need”.
Robert Jenrick also commented that he believed the proposed legislation ‘‘will ensure many viable businesses can continue to operate and debts accrued as a result of the pandemic are resolved to mutual benefit swiftly’’.
Statutory Demands and Winding Up Petitions
Statutory demands and winding up petitions will also remain restricted for a further three months, until 30 September 2021, in order to protect companies from creditor enforcement action where their debts relate to the pandemic.
CRAR (Commercial Rent Arrears Recovery)
The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 prevented landlords from using CRAR unless an amount of at least 90 days’ rent was due (it had previously been seven days or more).
In March, the threshold for CRAR increased to 554 days rent for anyone seeking to use this remedy after 24 June 2021; but this restriction was also set to expire on 30 June 2021.
In the context of the government’s current announcements, it is very likely that the restrictions on CRAR will also be extended.
The recent reported case of Commerz Real Investmentgesellscahft mbH v TFS Stores Ltd set out that the government’s restrictions do not extend to seeking a money judgment for unpaid rent, for instance via a Part 7 or Part 8 CPR claim in the High Court or the County Court.
Pursuant to this recent judgment, in deciding such claims the financial impact of the pandemic on tenants does not affect the legal construction of a lease and the liability of tenants for rent arrears owed.
While money claims remain an option for landlords, it remains unclear how the current proposed arbitration process may affect the ability of landlords to rely on this remedy.
Reaction from Landlords
Senior property industry figures have been quoted in Property Week, describing the government’s plan to extend the commercial property eviction moratorium as “crazy”.
During the Coronavirus pandemic, property industry figures have argued that no other sector has been asked or expected to support another – and in this context, support for the retail sector should be coming from the government, not from landlords, who have not been provided with any support or safety net.
Landlords have also said that the government should have moved much earlier to enact an arbitration process in order to help more vulnerable real estate companies.
Melanie Leech, the chief executive of the British Property Federation commented: “The blanket extension to the moratoriums will provide further opportunity for those well-capitalised businesses who can afford to pay rent, but are refusing to do so, to continue their abuse of government and property owners’ support and will cast a long shadow over future investment to build back better.”
Reaction from Tenants
In contrast to the reaction from landlords, significant associations representing the retail and hospitality industries have welcomed the government proposals.
Andrew Goodacre, the CEO of the British Independent Retailers Association said: “It is obvious that retailers with rent debt incurred during the closure periods need further protection and more time as they look to re-build their businesses.’’
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