Introduction
Over the past 15 months, since March 2020, commercial rent arrears have increased to unprecedented levels in the UK. And, with Government restrictions still being applied to some of the usual remedies to recover rent arrears for commercial landlords, it’s all the more important for landlord and tenant disputes to be settled quickly, through negotiated agreements for the future.
Recent announcements have indicated that new legislation is likely to be published in the coming months, which could force landlords and their tenants into binding arbitration rather than going to Court. This will impact any arrears discussions and potentially put landlord and tenant relationships and enterprises at risk.
Given this situation, our expert team of property litigation and debt recovery specialists will work with both parties to try and achieve mutually beneficial agreements and will provide support during these negotiations. As such, we’ve put together this useful guide to give you all the information you need as a commercial landlord or tenant, to help you take the necessary steps to avoid further financial complications and build a lasting relationship that protects both of your enterprises.
The current situation
The Coronavirus Act 2020 initially gave a three-month moratorium on forfeiture of lease due to rent arrears in respect of commercial property in England, Wales and Northern Ireland. This was due to expire on 30 June 2021, but following the Government’s announcement on 16 June, this has now been extended to 25 March 2022. The current moratorium on action by landlords to recover rent arrears via bailiff action under the CRAR process has been similarly extended. These extensions mean commercial landlords are now faced with further delays in rent collection for arrears accrued during periods of enforced closure during the pandemic.
It’s important to note that the moratorium does not excuse tenants from paying their rent during the pandemic. All commercial tenants remain liable for payments due since March 2020.
So far, many commercial landlords have been successful in negotiations with their tenants for new, improved lease agreements that align better with current financial situations. It is possible these successful rent concessions could have followed the Government’s publication of The Code of Practice for Commercial Property Relationships in June 2020. A key takeaway from this documentation was that tenants were (and still are) required to be transparent with their landlords regarding their finances, although the code itself has not been seen as a mandatory order.
Binding arbitration
In the Government’s recent announcement, it was declared that new legislation will be introduced in the coming months to ring-fence arrears which have built up while commercial tenants were forced into temporary closure due to successive pandemic lockdowns. It is still expected that landlords and tenants will try to negotiate agreements in terms of all arrears relating to COVID-19, but naturally, not all negotiations will result in success. To address this, the Government advised that a new legally binding arbitration process will be introduced for landlord and tenant disputes that have yet to be resolved.
No date has yet been given as to when this proposed legislation will be published but it is expected in Autumn 2021, which is why we strongly encourage commercial landlords and tenants now to seek legal advice early on in their negotiations. It is expected that tenants who can pay should pay. We understand the difficulties involved with securing early settlement of these types of disputes between landlords and tenants, but it is even more important to try to achieve this quickly, otherwise, both parties risk being forced into binding arbitration later this year.
