On 10 March 2021, the government announced its intention to extend the restrictions on commercial landlords' ability to take enforcement action against commercial tenants who are in arrears of rent. The restrictions have been extended until 30 June 2021.
The existing restrictions, originally introduced in March 2020 in response to the impact of the Coronavirus pandemic, have been extended throughout 2020 and were due to expire on 31 March 2021, following the announcement of the "final extension" in December 2020. The further extension had been widely expected in light of the government's recent publication of its "roadmap" for the gradual relaxation of social distancing rules.
The government has again encouraged commercial landlords and tenants to follow the Code of Practice published in June 2020, in order to negotiate and resolve any disputes relating to rent arrears.
The government has also given some insight into the scope of a review of commercial landlord and tenant legislation that was announced last year. A broad range of issues will be reviewed, including the security of tenure provisions contained in the Landlord and Tenant Act 1954 and the "impact of Coronavirus on the market", a concept vague enough to give the government broad scope for reform.
In the meantime, landlords' methods of enforcement are restricted as follows:
Forfeiture of commercial leases
The existing moratorium on forfeiture of commercial lease on the grounds of non-payment of rent was due to expire on 31 March 2021. The government has announced that further regulations will be put in place to extend the moratorium until 30 June 2021. In the absence of further legislation, landlords will be able to forfeit for non-payment of rent from 1 July 2021.
Until then, forfeiture will remain available as a method of enforcing any breaches of lease covenant other than a tenant's failure to pay rent. This right to forfeit will remain conditional on landlords complying with the statutory restrictions of service of a notice under section 146 of the Law of Property Act 1925 and giving the tenant a reasonable period of time to remedy the breach(es).
In light of the current government regulations regarding social distancing and restrictions in place across the UK, what constitutes a reasonable period of time might be longer than usual. This method of enforcement could also be made more difficult in light of the backlog of claims being dealt with by the courts. In reality, therefore, forfeiture will only be an effective remedy for commercial landlords in the most exceptional circumstances.
Commercial Rent Arrears Recovery
In addition to the extension of the forfeiture moratorium, the government will also put in place new regulations to further restrict landlords' ability to exercise their rights under the Commercial Rent Arrears Recovery (CRAR) procedure.
Under CRAR, if a tenant is in arrears of a certain level of rent, a landlord can serve a notice on the tenant demanding payment. If the sums are not repaid, the landlord can instruct an enforcement agent to follow a statutory procedure and seize assets held by the tenant. Those goods would then be sold at auction and the proceeds of sale used to repay the arrears owed to the landlord.
In order to help tenants to deal with the economic impact of the Coronavirus pandemic, the government has again increased the threshold amount of arrears that must be due in order for a landlord to exercise its rights under the CRAR procedure.
The previous threshold (which applied to any notice of enforcement given after 25 December 2020) prevented landlords from exercising rights under CRAR unless 366 days of principal rent had been outstanding at the date of service.
Under the new regulations, the threshold amount of arrears required in order for landlords to exercise the CRAR procedure has been increased as follows:
- where CRAR is exercised between 25 March and 23 June 2021, 457 days' worth of principal rent must be outstanding; and
- where CRAR is being exercised between 24 and 30 June 2021, 554 days' worth of principal rent must be outstanding.
Statutory demands have often been an extremely effective way of securing payment of commercial rent arrears from tenants, given that a failure to pay the sums due within the 21 day deadline can lead to a petition being issued to have a tenant wound-up.
When the Corporate Governance and Insolvency Act came into force last year, landlords were, to all intents and purposes, prevented from utilising this method of enforcement. This restriction was due to come to an end on 31 March 2021. An extension beyond 31 March 2021 is by no means out of the question and, in keeping with previous extensions of Covid regulations, it seems likely that the coming days may see the government announce further restrictions on the use of this method of enforcement, up until 30 June 2021.
This will cause concern for some landlords who believe that the government restrictions are being abused by certain tenants which have the means to pay, but are refusing to do so in order to negotiate rent reductions or improve their short-term cash-flow. Faced with non-payment, landlords must currently choose between negotiating concessions or issuing a claim at court for the sums due.