Commercial Landlords’ hands remain tied up on Tenant’s ongoing rent arrears

The Government has just announced that the current restrictions on commercial landlord’s rent arrears enforcement action has been extended. The further extension will last 9 months, bringing the restriction to an end on next year’s March quarter date, 25 March 2022. By then the moratorium will have been in place for a total of 2 years. Interestingly, the restrictions on serving statutory demands and winding up petitions are also being extended for 3 months, until 30 September 2021, thereby further tying the landlord’s hands, at least until then.

The extended restriction on rent-related forfeiture of business tenancies will prevent landlords from forfeiting a lease on the grounds of non-payment of rent. The aim is to allow landlords and tenants to come to their own agreements, without there being the threat of eviction. The government’s thinking is interesting and arguably archaic as this is the first 9 month extension for this restriction, all previous extensions have been made for periods of 3 months.

Yesterday’s announcement also extended the current restrictions on using commercial rent arrears recovery (CRAR) as a method of enforcement. This is unless a minimum threshold of rent is owed, which currently stands at 6 quarters worth of rent. However, this will not be increased. This means that a tenant who failed to pay rent from the March quarter 2020 to the June quarter 2021 may be protected from CRAR if they ensure they keep their net rent arrears below the equivalent of 6 quarters rent. These tenants will, however, have to pay the future September quarter rent onwards to avoid losing such protection. For landlords it is also important to note that VAT or interest cannot be counted when calculating rent arrears.

The Government also announced that in due course, a new arbitration scheme will be in place. The aim appears to be to allow a forum where landlords and tenants can resolve their disputes amicably in the first instance, followed by a binding arbitration process rather than court action. There is also talk of “ring fencing” previous arrears and focussing on the use of an arbitration process to focus attention on dealing with payment of future rent. For now, it is a case of watch this space regarding the details.

The extension on restrictions applies to all sectors, not just those hardest hit by the pandemic such as hospitality and retail. The extended protection shows the Government believes the retail sector is likely to fall further even post the current 19 July 2021 “freedom day”. This does appear to be unfair on landlords, who will in some cases not have received rent for 2 years once the moratorium finally ends, whereas some tenants have avoided paying rent even when trading through the Covid 19 pandemic and lockdowns.

This extension is also at odds with recent court cases which have been determined in favour of landlords and which commentators thought could potentially have influenced the government’s strategy. In the related cases of Bank of New York Mellon (International) Ltd v Cine-UK and others [2021] EWHC 1013 (QB); and Commerz Real Investmentgesellschaftmbh v TFS Stores Ltd [2021] EWHC 863 (Ch); [2021] PLSCS 74, the landlords were awarded summary judgment of their money claim for rent arrears (not possession/forfeiture), in spite of the tenants’ protestations and Covid related defences. The ongoing restrictions on forfeiture and these cases may now encourage more landlords to take similar action at court.

Finally and as we have commented previously, it remains open for landlords to pursue tenants for other breaches of covenant of their leases, such as unlawful assignment, parting with possession, substantial dilapidations and disrepair and other breaches, in respect of which specialist property litigation advice should be taken at an early stage.

For further information please contact partner Shams Rahman or any member of the Property Litigation team.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

Please also see a copy of our terms of use here in respect of our website which apply also to all of our blogs.