Covid-19 Impact on Commercial Rents

Kate Barnes, Solicitor at Kerseys reviews the long-term impact of COVID-19 on commercial rent recovery.

Whilst many part of life have fewer or no restrictions, commercial leases are still not back to “normal”. This is a summary of some of the changes in place and further legislation proposed.

The moratorium on forfeiture for rent arrears and commercial rent arrears recovery (CRAR) has been extended until 25 March 2022. This does not prevent forfeiture for other breaches of a lease or debt proceedings for the arrears of rent. CRAR can be used if the arrears are 554 days’ or more. The serving of a winding-up petition on the basis of a statutory demand remains restricted until 30 September 2021.

The announcement of the extension of the moratorium also heralded the proposed introduction of a new compulsory and binding rent arrears arbitration process. This is designed to resolve disputes over rent that fell due when a business had to remain closed during the pandemic. Further details of the proposed legislation were announced in a “Policy Paper” at the beginning of August.

The government has said that:

It expects landlords and tenants to come together and negotiate.
The legislation will “ring fence” rent debt accrued from March 2020 for tenants who have been affected by COVID-19 business closures until restrictions for their sector are removed.
Landlords are expected to agree terms with tenants impacted by closures to defer or waive an appropriate proportion of those arrears.
Where agreement cannot be reached, both the landlord and tenant will have to undertake binding arbitration.
It expects that landlords will share the financial burden with tenants where they are able to do so and give tenants breathing space to agree new terms, but also that tenants who can pay, should.
Normal contractual rules will apply for those tenants able to pay rent debts in full and not affected by closures, and for any debts accrued outside of the ring-fenced period.
The new system will not prevent landlords taking action to evict a tenant for the non-payment of rent debt incurred prior to March 2020 and from the end of the ring-fenced period or arrears for businesses not impacted by COVID-19 closures.

It is not known yet when this new legislation will be introduced but I assume it will be in place when the current moratorium is lifted, so before the end of March 2022.

It is now clear that landlords will have to be prepared to be reasonable with tenants over rent arrears accrued when businesses could not trade and restrictions on recovering those arrears will remain in place in the long term.

For further information, please contact Kate Barnes at Kerseys Solicitors on 01473 213311.