The Government has published its response to the call for evidence in relation to Covid-19 commercial rent arrears, says commercial property agent Prop-Search, along with proposed new legislation it plans to introduce before the forfeiture moratorium is lifted next year.
At the start of the pandemic, the UK Government moved quickly to introduce a range of measures to protect tenants, but which restricted the ability of landlords under commercial leases to recover payment of rent arrears, forfeit leases and obtain possession of premises from tenants. These measures have been extended numerous times throughout the pandemic but are set to come to an end 25 March 2022.
New legislation is now being introduced to tackle rent arrears as a result of Covid-19, that will ringfence rent debt accrued during the pandemic by businesses affected by enforced closures and set out a process of binding arbitration to be undertaken between landlords and tenants.
Simon Toseland, a Director of Prop-Search, said: “The Government has made clear that under the new system, parties will be expected to negotiate first and resort to arbitration only as a last resort. It has also signalled its intention to strengthen the existing voluntary Code of Practice; promoting cooperation between landlords and tenants to agree structured rent arrear negotiations.”
However, the new system for debt recovery will apply only to tenants that have been affected by business closure restrictions during the pandemic - commercial tenants in sectors that were not required to close during the pandemic will not be covered.
Furthermore, the new system will only apply to rent debt accrued from March 2020; any rents falling due before March 2020 or after restrictions were lifted will not be covered. Landlords will therefore be able to evict tenants for non-payment of rent prior to March 2020 and after the end of sector specific restrictions such as trading restrictions on opening hours and social distancing measures.
Simon Toseland, concludes: “Unfortunately, some commercial tenants - to help manage cash flow - have withheld payment of rents since the first lockdown, even in respect of periods where they were open and able to trade, by using the Covid-restrictions as their justification for refusing to pay. This has resulted in landlords facing substantial arrears on their rent rolls.”
He continued: “This new system clearly strikes a balance; requiring landlords to share the financial pressure with tenants for Covid-19 related rent debts, but expecting tenants who can pay, to pay.”
Some landlord’s frustrated by the absence of a full range of pre-COVID-19 rent recovery options being available, have already started to pursue debt claims for rent arrears in the civil courts.
Earlier this year, the High Court has ruled on a number of cases confirming that landlords are, in most circumstances, entitled to recover rent and service charges owed to them by tenants whose premises have been closed as a result of COVID-19 restrictions. The first such case was Commerz Real Investmentgesellscahft mbH v TFS Stores Ltd, where the Court held that while the current Government measures restrict some of the remedies available to a landlord - such as forfeiture for non-payment of rent - they do not prevent a landlord from bringing a claim before the Court.
Prop-Search says that the publication of the new Code of Practice - expected in the autumn – will provide clarity and more detail on how the new measures will work in practice.