Insights

Protection from Enforcement Action for Commercial Tenants

Not just further extensions…

Whilst the Government has announced extensions to many of its tenant-friendly protections for the commercial leasehold sector, it has also announced that new primary legislation will be introduced, following its recent consultation.  This legislation will aim to "ringfence outstanding unpaid rent that has built up when a business has had to remain closed during the pandemic".  

Landlords will be expected to make allowances for the ringfenced rent arrears and share the financial impact of arrears with their tenants.  Measures that the Government expects to see include landlords waiving some of the total amount and/or agreeing a long-term repayment plan.   

Where agreement cannot be reached between landlords and tenants, a binding arbitration process will be put in place to resolve disputes.  The arbitration process will be delivered by "private arbitrators" that will "have to go through an approval process to prove their impartiality". 

Alongside the extensions, the UK Government has also announced a review of “outdated commercial landlord and tenant legislation”, to address concerns that the current framework does not reflect current economic conditions and realities and will consider a broad range of issues including the Landlord & Tenant Act 1954, different models of rent payment, and the impact of COVID-19 on the market.

While we wait to find out what will be covered by these, as yet undefined terms, the following sets out the latest round of rent arears enforcement limitations.

Forfeiture

The forfeiture moratorium initially put in place by the Coronavirus Act 2020 is set to be further extended in England from the existing expiry date of 30th June 2021 to 25th March 2022.

Landlords will be prevented from taking forfeiture action for non-payment of rents or other sums (including service charges and insurance rent) during the period between 26th March 2020 to 25th March 2022.

The current extension, which was due to end on the 30th June 2021, was purported to be the final moratorium extension for forfeiture however the Government has deemed further support necessary for commercial tenants.

Some landlords believe the government restrictions are being abused by some 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.

However the Government has made it clear in their recent announcement that those tenants who are able to pay should do so.

Forfeiture action does still remain available as an enforcement method to landlords in respect of breaches other than non-payment of rent. In addition, a landlord’s ability to commence court proceedings for rental arrears has not been impacted (at least for the moment).

Commercial Rent Arrears Recovery

The Government states that it intends to extend the restriction on the Commercial Rent Arrears Recovery (CRAR) procedure past 30th June 2021 to 25th March 2022.

Under CRAR, if a commercial 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.

The practical effect of this extension is to further protect tenants who do not pay the upcoming June, September and December quarter rents.

Moratorium on the statutory demand/ winding up route

The Government has announced an extension to the temporary restriction on the use of winding-up petitions and statutory demands for a further 3 months i.e from 30th June 2021 to 30th September 2021.

Under the current restriction creditors are unable to take enforcement action against debtors, if a debtor has been financially affected by COVID-19.

For commercial property advice, please get in touch with Omari Elcock from our Commercial Property team on 01689 887875 or email omari.elcock@cwj.co.uk

Although correct at the time of publication, the contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.