Government extends restrictions on enforcement against commercial tenants
The British Government has announced an extension to the restrictions imposed last year on landlords’ options for enforcing the terms of their commercial tenants’ leases.
On 16 June 2021, the Government announced in a press release that commercial tenants would benefit from further support in light of the four week delay in the lifting of the COVID-19-related restrictions currently in place nationally. Whilst the specifics of the support to be offered to commercial tenants have not yet been revealed, the restrictions on forfeiture of commercial property, expected to be lifted on 30 June 2021, are to be extended and there are also proposals to ‘ring-fence’ claims for unpaid rent.
Proposed ring-fencing of commercial tenants’ arrears
The Government has announced that primary legislation will be introduced to ring-fence any arrears that have accumulated due to closure of businesses in response to the coronavirus. As the specifics of this legislation have not been announced, all that has been revealed at this stage is that landlords and tenants are expected to come to an agreement on any arrears resulting from the response to COVID-19. Landlords will be expected to make allowances for their tenants and absorb a proportion of the arrears that have accumulated, either through a waiver of arrears owed or a long-term payment plan.
If the parties cannot reach an agreement, a binding arbitration process must be entered into to achieve resolution.
This will be of great concern to commercial landlords as debt claims against tenants have been the main enforcement option remaining to landlords without the benefit of a rent deposit or guarantee.
The Government has however stated that the proposal is not intended to be a free pass for tenants to avoid paying rent. If tenants are able to make payment of the rent and any arrears, they must do so. However, it is not clear whether the Government intends to outline a set of criteria that tenants must satisfy to benefit from the proposals, or whether tenants will be left to make their own decision as to whether they wish to request this ring-fencing from their landlords. Therefore, the Government’s attempt at reassurance in this regard is not entirely satisfactory to those owed over a year’s worth of rent from their tenants.
Restrictions on forfeiture
The Coronavirus Act 2020 implemented protections for business tenancies. It restricted a landlord’s ability to forfeit a lease during the ‘relevant period’. The relevant period started on 26 March 2020 and was scheduled to end on 30 June 2021 (following multiple interim extensions). It was believed that these restrictions would be removed in line with the removal of all nationwide restrictions set to end on 21 June 2021. However, despite the release date only being officially pushed back by four weeks, the Government has announced that it intended to extend the restriction on a landlord’s ability to forfeit a commercial lease until 25 March 2022.
This is a significant extension, the longest one to date, and the reasoning behind this has not been revealed by the Government.
Commercial Rent Arrears Recovery
The Government also confirmed that the current restriction on Commercial Rent Arrears Recovery (CRAR) has been extended. The total number of days’ outstanding rent required before a landlord can recover arrears under the CRAR procedure will remain at 544 days. As with forfeiture, this restriction is set to remain in place until 25 March 2022.
The current legislation which restricts the service of statutory demands and winding up petitions has been extended for an additional three months until September 2021. This is another attempt by the Government to protect debtors from enforcement by creditors.
It remains to be seen when the new proposals will be implemented and when the Government will provide the details of the further restrictions. As a result, it is difficult at this stage to assess any potential issues or difficulties in the practicalities of the new proposals. However, this announcement gives creditors another hurdle to overcome when attempting to recoup the losses incurred since the lockdowns began in March 2020 and, with the repeated extensions of these restrictions, hope for a return to business-as-usual pre-COVID-19 for lessors of business premises continues to dwindle.
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.