Legal Update: Property Briefing – June 2021
The government has announced extensions to some of the existing measures put in place to support commercial occupiers through the pandemic. These extensions will be combined with the introduction of new rules to address the “cliff-edge” when the measures do, eventually, end for good.
Extension of measures
The existing ban on evictions of commercial tenants will be extended until 25 March 2022. This is a significant extension, well beyond the anticipated re-opening of businesses. It will give occupiers some breathing space and is intended to allow those tenants who are still currently unable to open to have time to reach an agreement with their landlords. The ability of landlords to recover rent arrears through the seizure of goods will similarly be extended.
The restriction on the use by landlords of the Commercial Rent Arrears Recovery (“CRAR”) process will also be extended. For CRAR to be used, the necessary total number of days’ outstanding rent will remain at 554 days.
There will be a gradual re-introduction of some of the other remedies available to landlords pre-pandemic in relation to unpaid rent. A shorter, three-month, extension will apply to the current restrictions on statutory demands and winding up petitions.
Earlier this year the government announced a “call for evidence” in relation to the impact of the pandemic on commercial tenants. One of the key questions was how to address the sizeable sums of outstanding rent owed by many occupiers. With large numbers of businesses struggling to settle these significant arrears on top of ongoing rental liabilities, there was concern within tenant organisations that the moratorium on evictions was simply postponing the inevitable.
To address this concern, the government is bringing in new legislation to “ringfence” outstanding rent arrears that have built up while businesses were required to close during the pandemic. It is intended that the legislation will help landlords and tenants to come to an arrangement, such as a waiver of rent or repayment plan, in relation to the ringfenced rent arrears. Going beyond the existing code of practice, which encourages dialogue and agreements between landlords and tenants, a new binding arbitration process will apply where an agreement cannot be reached. Arbitrators will have to go through an approval process to prove their impartiality.
Unlike the protection from eviction measures, which apply to all commercial businesses, the arbitration process will only apply to those occupiers “impacted by closures”. An interesting choice of words. The recent case of WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellschaft mbH highlighted how tenants could be significantly impacted by the closure of other businesses even though themselves able to remain open. We will need to wait for the legislation to see whether the rent arrears must relate to a period when the tenant itself was required to close, or whether it could cover unpaid rent that built up when other businesses were closed.
What about protection for landlords?
The government is “making clear” that tenants who can afford to pay should do so. This is a familiar message that has been conveyed throughout the pandemic. Whether it will be enforced in some way through the legislation, we shall see.
Watch this space
The legislation addressing the new arbitration process is reportedly being brought in this session.
The government’s formal response to the call for evidence on commercial tenancies is also expected shortly, although no time scales have so far been announced.