Government Extension to Restriction on Rent Recovery Action

The government has announced its latest decision on the restrictions on commercial rent recovery.  While it may be welcome relief for some tenants, it is not good news for landlords.

Commercial Rent Arrears Recovery (“CRAR”)

The restrictions on CRAR will remain in place until 25 March 2022. This significant nine month extension is a big blow to landlords who would have been hoping to use this power once again.

There is some minor good news for landlords, in that the number of days’ outstanding rent required in order to exercise CRAR will remain at 554 (or six quarters). This provides some relief for landlords whose tenants have not paid rent at all since the first lockdown, and the equivalent period going forward.

In practical terms, a tenant who has not paid rent since 25 March 2020 will benefit from the restrictions on CRAR until 28 September 2021 but, after that, they must pay rent to prevent landlords exercising CRAR.

Rent Related Forfeiture

The ability to forfeit business tenancies due to unpaid rent is also being extended until 25 March 2022. As a reminder, the right to forfeit cannot be waived during this period and is preserved, unless an express waiver is granted in writing.

In this context, rent means any sum that is payable under the business tenancy. However, the restriction only relates to unpaid rent and not other breaches. If, for example, a tenant becomes insolvent, a landlord may be able to exercise forfeiture on the grounds of insolvency if permitted by the lease.

New Legislation on Accrued Arrears

That news may be tempered by upcoming legislation announced by the government. The intention is that businesses forced to close during the pandemic will have their arrears from the periods of closure ringfenced.

The precise impact of this legislation will not be known until a draft is published, but the goal is to force landlords and tenants to share the financial burden, either by agreement or through a binding arbitration process.  Landlords are not currently restricted from obtaining judgment for rent arrears accrued during the pandemic and it is not clear whether the “ringfencing” will prevent this, or to what sectors these provisions will apply.

The government has emphasised that it expects those who can pay rent to do so once restrictions change, but it remains to be seen what impact it will have on landlords’ powers (such as CRAR or forfeiture) once the restrictions expire where the tenant is not paying rent, but is affected by this new legislation.

Further Restrictions

The restriction on the ability to serve a statutory demand or issue a winding-up petition has been extended until the end of September 2021. Any statutory demands served on companies before 1 October 2021 cannot be relied on as a basis for winding up, even if the tenant’s situation is not as a result of Covid.  Before that date a petition may only be served where it can be shown that the tenant’s financial position has been unaffected by the pandemic.  These provisions only apply to corporate debtors, not individuals.

Comments

It seems as though the focus on these restrictions is now shifting, to protect those tenants who are able to pay rent going forward, and encourages them to do so while retaining protection in respect of historical Covid-related arrears. Landlords will undoubtedly be very wary of the impact of the proposed new legislation, which could significantly hamper their prospects of recovering the amount of rent they hoped or expected once restrictions on recovery are eased.

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