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27th April 2021

UK Government Consults on what to do about Commercial Property Rent Arrears

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In March 2020, in response to the COVID-19 pandemic, the UK government announced temporary restrictions and limitations on the enforcement rights available against commercial tenants in rent arrears.

The COVID-19 lockdown had a detrimental impact on the income of many businesses prompting measures to be introduced to help them financially. The current measures are due to expire on the 30th June 2021.

On 6th April, the Government launched a consultation on whether the existing measures need to be extended, removed, or replaced. It seeks to obtain the views of those affected and concerned by the restrictions currently in force. The outcome of this consultation will pave the way for the Government to decide how to proceed and is open for responses until 11:45pm on 4th May 2021.

The consultation has proposed six options for consideration. This includes:

  • Permitting the restrictions to expire on 30th June 2021.

This option would permit Landlords to recover rent arrears using methods such as the CRAR, statutory demands, winding up petitions and lease forfeitures. This would restore the rights that landlords were previously entitled to.

  • The suspension on commercial lease forfeitures to expire on 30th June 2021 whilst the restrictions on insolvency and CRAR procedure remain in place for longer.

This option would require the terms of an agreed lease to be scrutinised to allow for a lawful eviction based on non-payment of rent.

  • Allow the existing measures to temporarily remain in place for the businesses that have been severely affected by COVID-19.

This method would prevent commercial tenants from abusing the measures in place as they would have to prove the impact that COVID-19 has had on their business. Tenants who were forced to close their businesses due to the lockdown would benefit from this option.

  • Enhanced mediation between commercial landlord and tenants.

This option would involve a qualified third party supporting the parties in managing the issue.  This mediator would remain neutral and would not enforce a settlement on the parties involved.

  • Non-binding adjudication between landlords and tenants

This option would involve an independent, accredited adjudicator outlining a settlement based on the evidence provided by the parties. The judgement would be non-binding so the parties could still take the matter to court, to resolve the dispute if they were not satisfied with the outcome. Some of the proposed remedies include:

  • Readjusting the future rent under the lease
  • Increasing the term of the lease
  • Reducing the term of the lease

  • Binding non-judicial adjudication

Legislation would need to be introduced for this measure. The legislation would require the following:

  1. Adjudication becoming mandatory for certain sectors of businesses
  2. Principles to be outlined for adjudicators to follow
  3. Parties to have the option to submit evidence
  4. An accreditation plan for private adjudicators to be involved.

Both the adjudication proposals allow adjudicators to include orders to extend and reduce the term of a lease, re-set the rent and change obligations in rent deposit deeds. These orders would overturn well established principles of landlord and tenant law and may be quite difficult (and expensive) to achieve effectively legally. Such variation to tenants agreed terms raises issues of reversionary leases, superior landlord consents and implied surrenders and regrants which may not have been fully appreciated in the consultation proposals. The adjudication option is also most likely to be disfavoured by landlords as it would require them to submit evidence despite being contractually entitled to the rent due under the lease.

The consultation is seeking views on how to achieve the difficult balance between the interests of commercial landlords and the need to support and protect financially burdened tenants.

To add your view, click here.

Patricia Kempson is a partner in our commercial real estate team and can be contacted on 01604 463352 or by email by clicking here.