Please note: The information in this article is correct as of 06/05/21. Due to the ongoing nature of the situation, guidance is subject to change and as such we would always advise you speak with a solicitor for specific advice.
It comes as no surprise that the various lockdowns that have been ordered during the pandemic have had a very negative impact on profitability levels in many businesses. Current measures previously put in place by the UK Government in March 2020 limiting enforcement rights against commercial tenants in rent arrears are due to expire on 30 June 2021.
On 6 April, the Government launched a consultation as to whether these existing measures need to be extended, removed or replaced. The consultation closed on 4 May and results are expected thereafter.
The consultation proposed six different options:
Permitting the current restrictions to expire on 30 June – this would allow procedures to return to their pre-pandemic position allowing landlords to recover rent arrears by way of lease forfeitures, Commercial Rent Arrears Recovery (CRAR) and winding-up petitions.
Permitting the suspension of commercial lease forfeitures to expire on 30 June but allowing restrictions on insolvency and the CRAR to remain in place for now.
Allowing the existing measures to remain in place temporarily for those businesses that have been the worst affected – in this case tenants would have to provide evidence of the detrimental impact that Covid-19 has had on their business (eg. forced closure of business).
Mediation between landlords and tenants- this would encourage the parties to manage the issue between them but the mediator would not enforce a settlement on the parties.
Non-binding adjudication between landlords and tenants – this would involve a settlement being outlined but not enforced on the parties so would leave it open to the parties to take the matter to Court if required.
Binding adjudication – this would involve a settlement being outlined and enforced on the parties.
In relation to options 5 and 6 above, settlements could include orders to extend or reduce the term of a lease, adjust the amount of rent and change obligations in rent deposit deeds. These are likely to be unpopular options for landlords as they would be required to provide evidence of their entitlement to recover rent, despite their obvious contractual entitlement under the lease granted to their tenant. Furthermore, any such changes would no doubt raise issues in terms of reversionary leases, landlord consents and implied surrender and re-grants of leases which would all need to be dealt with, incurring time and costs.
The results of the consultation will need to be awaited to see what is decided. Landlords will be encouraged however by a recent case heard by the High Court where judgment was given in the Landlord’s favour in relation to a claim for arrears of rent and service charge.
The Tenant argued that the Landlord was seeking to avoid measures put in place by the Government to restrict enforcement of rent arrears; however, the Court rejected this argument and held that while the Government had taken steps to limit some remedies capable of being exercised by landlords (e.g. forfeiture of commercial leases) the measures put in place by the Government did not prevent a landlord from bringing a claim against a tenant for a money judgment for rent arrears.
For legal advice on commercial leases and any disputes arising as a result of rent arrears, please contact Farleys commercial law team on 0845 287 0939 or contact us by email.