There’s a bigger storm coming

This article was co-authored by Miran Bahra, Trainee Solicitor, London.

Over the past year, we have considered the government measures brought in to support tenants and businesses affected by the COVID-19 pandemic.

On 6 April 2021 the government published a Call for Evidence on the ban of the use of forfeiture and the restrictions in place on the Commercial Rent Arrears Recovery (CRAR) process. The government sought information on how landlords and tenants were responding to the build-up of rent arrears to determine whether to withdraw or replace existing measures after 30 June 2021. It was further acknowledged that although winding-up petitions and statutory demands were not to be considered, the government were in fact interested in “the length of time for which these measures should be in place and how they relate to the other measures”. This Call for Evidence subsequently closed on 4 May 2021.

Since April 2021, the government has faced mounting pressure to address the continuing landlord and tenant rent row, particularly with an estimated £6 billion in rental arrears accrued since the start of the pandemic. On 16 June 2021, the government announced a much awaited update and confirmed that a response to the Call for Evidence will be published in the near future.

Alongside this, the government announced the following extensions:

Forfeiture

The ban on forfeiture would be further extended from 30 June 2021 to 25 March 2022. This is a nine month extension, considerably longer than the previous extensions the government has announced in respect of this measure. The government said the reason for this length extension is to ensure that “those sectors who are unable to open have sufficient time to come to an agreement with their landlord without the threat of eviction”. However, the government has again emphasised that those tenants who are able to pay their rent, should do so.

CRAR

The restriction on the use of CRAR by landlords would also be extended from 30 June 2021 until 25 March 2022 and the minimum net unpaid rent that must be outstanding before CRAR can be used will remain at 554 days.

Statutory demands and winding-up petitions

The restrictions on statutory demands and winding-up petitions, that were due to end by 30 June 2021, would remain for a further three months until 30 September 2021. This extension is to ensure that companies are protected from creditor enforcement action as a result of any debt accrued due to the pandemic. However, with the ban on forfeiture and the restrictions on CRAR continuing for an additional six months after these restrictions come to an end, landlords may well choose to bring debt related winding-up petitions from 30 September 2021 if their tenants cannot pay their bills (including rent).

Other measures

The Communities Secretary, Robert Jenrick, also announced that legislation will be introduced to ring-fence outstanding arrears that have built up during the pandemic business closures. Landlords will be expected to make allowances for these ring-fenced rent arrears and share the financial impact with their tenants. The legislation is aimed to further assist tenants and landlords to work together and come to an agreement on how to deal with the monies owed. This could include waiving a percentage of the total outstanding amount or agreeing a longer-term repayment plan.

In circumstances where an agreement cannot be reached, the legislation will introduce a binding arbitration process to enable both landlord and tenants to agree a legally binding agreement that must be adhered to.

Comment

The British Property Federation has advised that since March 2020, 23% of all rent owed remains unresolved, with landlords and tenants being unable to agree on how the arrears should be managed. In addition, a further 14% of tenants were failing to liaise with landlords despite their willingness to work collaboratively with tenants to find a solution. The government’s blanket extension will enable a minority of those well-capitalised businesses to continue deliberately withholding rent.

There is a disconnect between the period of extensions of forfeiture proceedings against the CRAR procedure and serving of statutory demands and it is unclear why that is. With most businesses now open and trading, there is also question as to why the government has extended these tenant protection measures by such an extensive period, especially given the success of the vaccination roll out. When these measures come to an end (if not further extended), in some cases it will have been two years since landlords were able to bring action against tenants. Unfortunately landlords are in for a further prolonged period of pain.

Related item: There’s a storm coming