Further restrictions on Commercial Landlords relating to the pandemic

Throughout the pandemic and as a result of the Coronavirus Act 2020 (“the Act”), there have been certain restrictions imposed on commercial landlords in order to protect their tenants. However, until now these restrictions did not mean that commercial landlords could not pursue rent arrears through debt recovery proceedings in Court.

Further, whilst the Code of Practice for commercial property relationships during the COVID-19 pandemic suggested that a collaborative approach to landlord-tenant relationships and rents during and as a result of the pandemic (as set out in this earlier blog), it was not mandatory nor did it affect the contractual relationship between landlord and tenant.  This was decided in Commerz Real Investmentgesellschaft mbh v TFS Stores Limited

June update

In June, I wrote this blog, referring to the above case and discussing updates to the moratorium on the forfeiture of a commercial lease and CRAR (commercial rent arrears recovery) which had been extended again to the 25 March 2022 but reminded commercial landlords that debt recovery proceedings through the Courts had not been affected.

Further restrictions from today

However, it was announced on the 9 November 2021, following the Autumn budget that from today, 10 November 2021, further restrictions are being imposed on commercial landlords in relation to rent arrears accrued during the pandemic.

From today, in addition to the moratorium on forfeiture and CRAR (Commercial Rent Arrears Recovery) and winding up proceedings, commercial landlords can no longer pursue debt claims, including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions where they relate to rent arrears accrued during the pandemic.

The Government states that this measure is designed to provide further protection to businesses which had to close and accumulated debts during the pandemic whilst the protection from forfeiture for business tenancies remain in place under the Coronavirus Act 2020.

Commercial Rent (Coronavirus) Bill

In addition, the Commercial Rent (Coronavirus) Bill (“the Bill”) was presented to Parliament yesterday which will, if passed, establish a legally-binding arbitration process for commercial landlords and tenants who have not already reached an agreement, following the principles in the new Code of Practice which replaces the Code of Practice for commercial property relationships (originally published on 19 June 2020 and updated in April 2021). This suggests that new Code will have more force than previously.

For further detail on the arbitration scheme please see my Property Disputes colleague, Ian McEwan’s article here.

Headline

The headline position if passed is that: if lease debts accrued due to business being required to close, in full or in part, from March 2020 until the date restrictions ended for their sector and when the parties have failed to reach agreement either party will be able to apply for arbitration unilaterally within 6 months from the date the legislation comes into force and; agree a maximum time frame to pay of 24 months.

The process is designed to resolve rent arrears disputes and to help the market return to normal as quickly as possible and it is intended that the Bill will come into force at the end of the current restrictions from 25 March 2022. This means that the arbitration process will be a legally-binding agreement the landlord and tenant must adhere to.

Alternatives

Note, it is proposed that the parties will be free to continue to negotiate outside of the legal arbitration process once it comes into force and use other forms of alternative dispute resolution, such as mediation, if they wish to pursue this.

It is also worth noting that whilst the Act stipulates that landlords may not forfeit a lease for non-payment of rent during the moratorium period or issue winding up proceedings relating to rent arrears accrued during the pandemic and; this is now extended to pursuing court or bankruptcy proceedings in relation to rent arrears accrued during the pandemic; this does not mean that, rent arrears accrued for other reasons or periods cannot be pursued or, you cannot forfeit on other grounds.

If you believe you may have the right to forfeit the lease, you are advised to get legal advice before communicating with your tenant, as you may be advised to cease all communications or particularly communications with regards to the arrears.  Our property disputes team can assist you with this.