Landlords of commercial property in England face further extensions to temporary laws that protect their commercial tenants from specified legal actions against them to recover rent arrears – and a new and unexpected ringfencing and arbitration procedure.
First, the temporary moratorium against forfeiture of a lease for non-payment of rent has been extended by nine months, until 25 March 2022. Under the moratorium, commercial landlords cannot forfeit a business tenancy for non-payment of rent if the non-payment is due to COVID-19.
The government has also extended the temporary restriction stopping landlords from bringing Commercial Rent Arrears Recovery (CRAR) proceedings against commercial tenants in arrears, until 25 March 2022. When they apply, CRAR proceedings permit landlords to give a notice to pay to tenants whose arrears have reached a certain level. If the tenant does not comply, the landlord can seize the tenant’s assets and sell them at auction.
Third, the temporary prohibition stopping landlords from using statutory demands against commercial tenants who are in arrears of rent because of COVID-19 has also been extended again, to 30 September 2021. Ordinarily, if a landlord serves a statutory demand for arrears and the tenant fails to pay within 21 days, the landlord becomes entitled to petition the court to have the tenant wound up.
In addition, and unexpectedly, the government has said it intends to bring in new laws that will ‘ringfence’ arrears of rent that have built up during the pandemic. Once COVID-19 restrictions are lifted, landlords will need to make allowance for them and share their impact – for example, by making an agreement with their tenant to waive part of that amount, or accepting a long-term repayment schedule.
If they fail to reach such an agreement, an automatic, legally binding arbitration procedure will apply, presided over by approved private arbitrators. No detail has yet been given as to the approval criteria for arbitrators, or which factors they will take into account when deciding whether, when and how a landlord will be allowed to recover all or any of the outstanding rent.
This appears to go against the previous government approach, which was that unpaid rent during the pandemic would become payable in full after the pandemic ended.
Kirsty Jackson, Head of Commercial Property at Ramsdens commented: “Commercial landlords should review their budgets and processes, and consider whether to take specialist advice, as a result of the further extensions and particularly the proposed new ringfencing and arbitration process.”