Commercial Tenant Update: Moratorium Extension to 31st March 2021

Forfeiture

On the 9^th December 2020 the UK Government announced that further regulations will be put into place to extend the moratorium on forfeiture action for non-payment of rent until 31^st March 2021.

Landlords will therefore be prevented from taking any forfeiture action for non-payment of rents or other sums (including service charges and insurance rent) during the period between 26^th March 2020 to 31^st March 2021.

Notably the announcement claimed that this will be the final moratorium extension for forfeiture and that where a Tenant can pay any or all of their rent, they should do so.

Some Landlords believe the government restrictions are being abused by a few tenants who are still trading and have the means to pay, but are refusing to do so in order to negotiate rent reductions or improve short-term cash-flow.

Forfeiture action however does still remain available as an enforcement method to Landlords in respect of breaches other than non-payment of rent.

Commercial Rent Arrears Recovery

The temporary changes to the Commercial Rent Arrears Recovery (CRAR) procedure have also been extended past 31^st December 2020 to 31^st March 2021.

Under CRAR, if a Tenant is in arrears of a certain level of rent, a Landlord can serve a notice on the Tenant demanding payment of the arrears. If the sums are not repaid, the Landlord can instruct an enforcement agent to follow a statutory procedure and seize assets held by the Tenant. Those goods would then be sold at auction and the proceeds of sale used to repay the arrears owed to the Landlord.

Currently with effect from 25^th December Landlords can only exercise CRAR where there is an equivalent of 366 days’ net rent due.

The practical effect of this extension is to further protect Tenants who do not pay the upcoming December and March quarter rents.

Moratorium on the statutory demand/ winding up route

Per the Corporate Insolvency and Governance Act 2020 winding up petitions (made from 27 April 2020 until 30 September 2020) and statutory demands (made from 1 March 2020 until 30 September 2020) were temporarily halted where a company was unable to pay its bills because of the impact of coronavirus.

This moratorium was initially extended until the 31^st December 2020 but it has now been confirmed that Landlords will be further prevented from taking this enforcement action up until 31^st March 2021.

It is not clear whether or not the UK Government intends for the extension to the moratorium on the statutory demand/winding up route to be final as unlike the moratorium on forfeiture there was no mention of this.

Alongside the extensions, the UK Government has also announced a review of “outdated commercial landlord and tenant legislation”, to address concerns that the current framework does not reflect current economic conditions and realities.