The Government has confirmed that it will be renewing the measures it introduced protecting tenants in the commercial property sector unable to pay their rent due to the COVID-19 pandemic. Currently, commercial tenants benefit from a prohibition on landlords forfeiting commercial leases for non-payment of rent and restrictions on landlords using commercial rent arrears recovery (CRAR) unless 189 days of unpaid rent is owed. These measures were due to end on 30 September 2020, however the Government has announced that both the restrictions on forfeiture and CRAR will be extended until the end of the year.
Housing and Communities Secretary Robert Jenrick said the extensions would “stop businesses going under and protect jobs over the coming months”. Business Secretary Alok Sharma added “it is crucial that both landlords and tenants have the clarity and reassurance they need to build back better from the pandemic” and that by extending the measures businesses will be given “some much-needed breathing space at a critical moment in the UK’s economic recovery”. However, the Government also made it clear that where businesses can pay their rent, they should do so, consistent with the message contained in the Code of Practice for the Property Sector which they published in June this year.
For commercial landlords, although this renewal of protection for tenants was widely expected, it will be of little consolation. Although a large number of landlords and tenants will have engaged proactively to seek a joint approach to navigate the effects of the pandemic, a number of landlords have had to contend with tenants simply refusing to pay rent even though they can and should be paying, or using the measures as an opportunity to seek to restructure their lease obligations. Further, although the underlying principles of the Government’s measures are to protect tenants and secure jobs in the long term, by again deferring rent payments they are potentially creating an even bigger problem in the future as tenants’ debts pile up. The cumulative effect of the Government’s measures is that by the start of 2021 a number of tenants could find themselves having to find the equivalent of around 9 months’ rent to pay to their landlords. In turn, the measures impact on a landlord’s income in the short term, and have consequences for a landlord’s financing arrangements and their own cash flow position (and so their ability to protect jobs of their own employees). This is a particularly bitter pill for some landlords to have to swallow when most tenants are now permitted to reopen and trade from their premises, albeit on a reduced scale due to social distancing requirements.
What is not clear is whether the Government is also intending to extend the restrictions on winding up companies, which are currently due to end on 30 September. We will have to wait and see but it is likely there will be a similar extension. As a result, landlords will, for the time being, find themselves with fewer options at their disposal to require payment of rents by their tenants. Landlords may therefore be obliged to consider other methods of recovery of rent, such as claiming against guarantors, drawing down on any security (such as rent deposits, bank guarantees) or by issuing a debt claim, which for the time being are not prohibited by the Government’s measures.