There is just over a week left to participate in the Government’s consultation on the withdrawal or replacement of the protections it has put in place to protect commercial tenants during the COVID-19 pandemic. On 6 April 2021 the Government launched a consultation calling for those involved in the commercial property sector to participate in a survey on what should happen when the current restrictions placed on landlords come to an end on 30 June 2021. The consultation is open to all those with an interest in commercial property and will end at 11.45 a.m. on 4 May 2021.
Since 26 March 2020 landlords of commercial property have been subject to statutory restrictions on their ability to recover rent arrears from their tenants. These include a moratorium on forfeiting leases for rent arrears, restrictions on the use of the commercial rent arrears recovery (CRAR) process and a prohibition on issuing winding up petitions or statutory demands for debts resulting from the COVID-19 pandemic . These measures are due to end on 30 June 2021 and the Government is unlikely to simply continue them in their current form. Equally, the effect of the restrictions has been to severely restrict the ability of landlords to recover rent arrears from their tenants for the duration of the measures, but the arrears themselves have not been forgiven, and so there is a concern that when the restrictions end there will be a rush of enforcement action taken by landlords. The Government has therefore stated that the consultation will “support the government’s decision making on the best way to withdraw or replace these measures while preserving tenant businesses and the millions of jobs that they support . If there is evidence that productive discussions between landlords and tenants are not taking place, and that this represents a substantial and ongoing threat to jobs and livelihoods, the government will not hesitate to intervene further.”
Reference to “productive discussions between landlords and tenants” is to the Government’s “Code of Practice for commercial property relationships during the COVID-19 pandemic“, which although voluntary encouraged landlords and tenants to engage proactively with each other during the pandemic to seek fair solutions to the respective challenges they each faced during the pandemic. The Code of Practice was clear that “tenants who are able to pay their rent in full should continue to do so” but equally that where they cannot “landlords should also provide support to businesses if they too are able to do so“. The Code of Practice was updated on 6 April 2021 to introduce a new template form for tenants to complete to form the basis of discussions with their landlords, the intention being to ensure that information provided to landlords would be of a consistent standard and quality and would help facilitate discussions.
The Government’s consultation therefore seeks to gather information on how the Code of Practice has been applied in practice, and whether landlords and tenants (and their funders) have actually engaged to support each other, including amending lease terms and granting rent concessions and waivers. The Government is concerned about the potential impact on the economy of significant rent arrears and the risk of widespread enforcement action by landlords once the measures end in June, and based on the results the Government will consider whether further measures are required to “preserve viable business and the jobs that they provide“.
Although a possibility, it does seem unlikely that when 30 June 2021 arrives the Government will either simply continue the existing restrictions in their current forms or allow them to expire without putting in place some sort of transitional protections. Other options being considered by the Government include:
- A continuation of the current measures for a limited time but targeted to business based on the impact that the pandemic has had on their ability to trade.
- Encouraging further more formal discussions between landlords and tenants, including by way of mediation and adjudication.
The current restrictions have severely impacted landlords from deploying their usual methods of collecting rents from their properties, and some landlords and tenants will have simply refused to engage under the Code of Practice. The voluntary nature of the Code of Practice has recently been affirmed by the High Court in a number of recent decisions relating to debt claims brought by landlords for unpaid rents. The High Court has been clear that the Code of Practice is voluntary and does not affect the existing legal framework, and as such will not present any obstacle to a landlord with a clear case for payment.
We will await with interest the outcome of this Government consultation and the impact it will have on continuing landlord and tenant relationships, and would encourage everyone with an interest to have their say and participate in the survey.
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