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Home Business Covid 19 and Rent Arrears – What does it mean for Commercial Landlords and Tenants?

Covid 19 and Rent Arrears – What does it mean for Commercial Landlords and Tenants?

by Jessica Weisman-Pitts
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By Sophie Greensill, Legal Executive at Aaron & Partners 

 

As a result of the pandemic and enforced restrictions, the commercial property market faced serious disruption, with some tenants struggling to pay rent having been forced to close, and landlords left with a number of empty units as many businesses moved to remote working for good.

To relieve pressure on tenants, the Government implemented a moratorium banning evictions, which has since built up a reported £6 billion in commercial rental debt. Now, despite the majority of Covid-19 restrictions ending in England, commercial landlords and tenants look set to abide by extended rules on rent for some time.

On 16 June 2021, the Government issued a statement confirming that new legislation will be introduced this parliamentary session, to ‘ring fence’ rent arrears accrued during closure periods in the pandemic.

Landlords will be expected to make allowances for these ring-fenced arrears, and may be required to share the financial burden with their tenants. The new legislation is also expected to set out a binding arbitration process for those landlords and tenants who cannot come to a suitable agreement.

The Covid-19 pandemic has added new facets to commercial landlord and tenant relationships. There have been problems with Covid related exclusions from landlord liability insurance, the expected influx of company insolvencies, and tenants who haven’t been able to open their businesses for extended periods of time (for example nightclubs). Many of these tenants have struggled to pay rent due to their loss of income.

In light of the retail and leisure industry struggles, the government introduced, as part of the Coronavirus Act 2020, a moratorium on all rent-related commercial forfeitures and evictions, which started on 26 March 2020 and has now been extended until 25 March 2022, having been previously due to finish on 30 June 2021.

The government has further indicated that the new legislation being introduced will only apply to those businesses who have had to remain closed according to Covid restrictions, and not those who have been able to trade but have been unable or unwilling to pay rent. How that will be applied in practice, and how those businesses will be identified, is not yet clear.

This is nonetheless positive news for those landlords with tenants who are taking advantage of the pandemic and are choosing not to pay their rent due to the lack of current repercussions.

It may however be unwelcome news to tenant businesses who have not necessarily been forced to close, but who have struggled to pay rent nonetheless due to other restrictions on trading, such as limited capacity in retail stores, salons, restaurants, and leisure attractions.

As well as the extended moratorium and proposed legislation, it has been announced that changes to the CRAR (Commercial Rent Arrears Recovery) scheme have also been extended to 25 March 2022. This means that landlords cannot exercise the CRAR scheme unless 554 days of unpaid rent (around 6 quarters) have accrued.

In a complex field of rules around how to operate in the commercial property market, ensuring compliance has never been more important. Taking advice from a qualified solicitor is the best way to protect your business, and stay on the right side of the law.

 

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