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Breathing space for commercial tenants?

Jun 21st, 2021

The government has extended the moratorium protecting commercial tenants from eviction from 30 June 2021 to 25 March 2022.

The government has extended the moratorium protecting commercial tenants from eviction from 30 June 2021 to 25 March 2022 whilst it introduces new legislation to resolve disputes between landlords and tenants who cannot reach an agreement regarding the level of rent arrears to have accrued as a consequence of the pandemic.  Restrictions on the landlord's ability to recover rent arrears through seizure of goods under the Commercial Rent Arrears Recovery legislation (CRAR) is also being extended to March 2022.

The extension applies to all businesses, but the new measures that will be introduced by primary legislation will only cover those impacted by closures. This mean that rent debt accumulated before March 2020 and after the date when relevant sector restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protection measures are lifted.

The restrictions on statutory demands and winding up petitions will remain in force for a further three-month period to protect businesses from enforcement action where their debts relate to the pandemic.

This will give much needed breathing space for commercial tenants, specifically those operating in the hospitality and entertainment sectors such as nightclubs and theatres which remain closed, however it will inevitably continue to cause a substantial cash flow headache for many landlords. 

The legislation which is proposed to be introduced in this Parliamentary session will provide a framework to assist landlords and tenants to reach an agreement as to how to deal with the unpaid rent which has amassed due to the closure of tenants' businesses during the pandemic. 

The government will expect landlords to make allowances and share the financial burden with their tenants by possibly waiving some of the money owed or agreeing a longer-term repayment plan. 

The legislation is aimed to help tenants and landlords work together to come to an agreement on how to handle the money owed. 

A binding arbitration process will be put in place to be followed by landlords and tenants in circumstances where the parties are unable to reach an agreement.  The decision of the arbitrator will be a legally binding agreement on both parties. 

The government is urging businesses to start paying their rent as soon as restrictions change, and they are able to reopen and recommence trading/operating.

Patricia Mellody, a senior associate in the property litigation department of Langleys Solicitors says “it will be interesting to see how the new legislation will operate in practice. Sorting out the masses of rent arrears which have accrued during the pandemic is, in many cases, as important to the survival of landlords' businesses as it is for those of their tenants.  I expect parties to negotiate hard in many circumstances with a lot of those negotiations being referred to the prescribed arbitration process to reach a resolution on the Covid-related rent debts". 

If you would like to have a confidential discussion on this topic, please contact us.

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