Commercial rent arrears – updated guidance for landlords and tenants
Richard Gore looks at the updated guidance for landlords and tenants dealing with commercial rent arrears.
Commercial rent arrears and Covid
The last 2 years have been challenging for both landlords and tenants of commercial property. Lockdown, and the government restrictions which came with it, have prevented many landlords from taking action to recover their rent. Tenants have benefited from not having to pay rent but have been encouraged to pay where they can as the rent remains due and owing.
The moratorium on the landlord’s ability to forfeit for non-payment of rent arrears ends on 25 March 2022 so it is probable that landlords who have been deprived of their rent will be looking to take action after that date to force the issue with their tenants.
Government code of conduct
To assist in plotting a route through the situation and to provide some ongoing structure to the landlord/tenant relationship, the government has released a code of conduct, designed to provide a framework for landlords and tenants to address arrears that have arisen. This is alongside proposals set out in The Commercial Rent (Coronavirus) Bill which is currently moving through Parliament.
The proposals and code relate primarily to rent which has accrued whilst the business was closed due to the pandemic. The code sets out time lines for different industry sectors and states that for rent accrued during those periods a moratorium period of 6 months (starting from the date the bill is made law) will run during which the landlord can take no action to recover that rent. This includes a ban on bringing court proceedings, using CRAR (commercial rent arrears recovery), forfeiture (extending the ban on impacted rent beyond the current March 2022 deadline), winding up proceedings or using any deposit paid by the tenant.
The intention is that where arrears have arisen as a result of the pandemic, when the business was closed, that the only option to the landlord and tenant is to engage in an arbitration process to resolve the position. The arbitration must be started within the 6-month moratorium period and can be commenced by either the landlord or the tenant. The arbitrator will be focused on preserving the tenant’s business but also the landlord’s solvency and will be able to order remedies such as writing off all (or part) of the debt, giving time to pay or reducing the interest on the debt.
Take action now
The implications are significant therefore for both landlords and tenants. Landlords should take action where they want clarity over rent and tenants should take action if they are concerned their landlord will take action at some point. In both cases the 6-month period must be adhered to.
Not all business tenancies will be caught by the new provisions and the proposals only relate to rent arrears which have arisen whilst the business was closed and during the relevant period.
Rent that has arisen at other times will still be due and the landlord can take action in respect of it.