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Commercial property evictions for rent arrears -protection extended until March 2022 Commercial property evictions for rent arrears -protection extended until March 2022

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Nov 21

Commercial property evictions for rent arrears -protection extended until March 2022

Written by Ryan Dhinsa
Solicitor

DDI: 01423 726619

E: ryan.dhinsa@raworths.co.uk

As Covid-19 measures to protect tenants from eviction are extended what is the impact on rent arrears?

The government has announced that section 82 of the Coronavirus Act 2020, which prevents landlords of commercial properties from being able to evict their tenants for non-payment of rent, will continue until 25 March 2022. Additionally, landlords will not be able to use the Commercial Rent Arrears Recovery regime which is their power to seize goods owned by the tenant in lieu of rent owed, as the restriction on this use has also been extended until 25 March 2022.

The government plan to implement new legislation ahead of March 2022, but in the meantime they have published a voluntary Code of Practice to encourage tenants and landlords to work together showing different rent options.

https://www.gov.uk/government/publications/code-of-practice-for-the-commercial-property-sector

This code is not compulsory, but is there to assist landlords and tenants during this uncertain time.

The reason these measures have been extended is clear, to protect businesses and the jobs that they support whilst the economy continues to face uncertainty. It also allows sufficient time for tenants to get back on their feet, parliamentary time for a new process to be put in place, and time to allow tenants and landlords to negotiate on the basis of the Code of Practice. The extensions in time might cause friction or issues between the landlord and tenant and all parties must work together to preserve relationships where they can.

Here we examine some common questions and considerations.

What about tenants who are not affected by closures and who are able to trade or practice their permitted use in their lease?

The government has made it clear that any commercial tenants that are not affected by closures and have means to pay, should pay their rent and all sums liable in the lease. This would include all tenants where restrictions have been lifted in their sector.

When a commercial tenant is able to pay their rent, at what point do they start paying their rent from?

Tenants are expected to start paying the rent from the point restrictions were lifted for their sector.

What are the options available for negotiating parties?

Tenants who are unable to meet their financial obligations are urged to seek an agreement with their landlord to pay what they can. This would involve a temporary re-gear of the lease by way of a Deed of Variation. This could be a waiver of rent entirely for a certain period, or a reduction in the rent going forward, or something in between.

It seems an unfavourable situation but there are many reasons why a landlord would agree to such. They may have a good relationship with the tenant; the tenant may be an anchor or renowned on an estate; the tenant may have been fully compliant in the past and is experiencing financial difficulties; or the landlord feels it’s better to come to an arrangement for the tenant to pay a proportion of the rent, rather than none. Often such actions can be seen as a gesture of goodwill by the landlord, and may be considered prudent for a landlord to preserve and build on their relationship with the tenant for the years ahead, rather than allowing it to weaken and risking the need to secure a new tenant, who may not hold as much covenant strength or reputation. Generally, it is not in a landlord’s interest to have vacant premises and it’s always a risk that they will not be able to let premises to an alternative tenant. In addition, there is a chance that the protections for tenants could be again extended, so it may be preferable to come to an alternative arrangement sooner rather than later.

What happens to the rent arrears for tenants who have been forced to close as a result of Covid-19, from March 2020 until restrictions are lifted?

When the legislation that is pending is passed, the rent arrears will be ring fenced. This will cover the debt from March 2020 until the restrictions are lifted for their sector. Terms could be agreed between landlords and tenants impacted by closures to defer or waive periods of rent or a proportion of the rent arrears. Where agreement cannot be reached, the government will introduce a system of binding arbitration. A binding decision would be made which could lead to payment of rent with interest, or eviction for non-payment of rent for the period prior to March 2020 and/or after the end of the ring fenced period.

 

Overall, it is of upmost important for parties in the lease to communicate with each other, and where possible come to an agreement. This agreement should be legally documented to protect both parties’ positions and clearly show the arrangement. Tenants should also receive tax advice whenever the rent is being varied.

Published on 15 November 2021

Ryan Dhinsa is a solicitor in Raworths’ commercial property team.  For assistance with all of your commercial property legal issues please get in touch with Raworths either by telephone 01423 566 666 or by e-mailing ryan.dhinsa@raworths.co.uk

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