Government To Introduce New Legislation Which Will Ring-Fence Commercial Rent Arrears Accrued During The Pandemic

The Government has this week outlined legislation that will ring-fence rent debt accrued by businesses due to enforced Covid-19 closures, which will introduce a procedure of binding arbitration to be carried out between landlords and commercial tenants.

The procedure is only to be used as a final resort, should negotiations between landlords and tenants concerning rent debts prove to be unsuccessful and a resolution cannot be reached. The full details of the procedure are yet to be released, but once they have, the principles of it will be put into legislation via a revised Code of Practice.

It has also been confirmed that the existing measure which prevents landlords from evicting their commercial tenants for rent arrears has been extended until 25th March 2022, unless the new legislation is passed before this.

Further to this, to support negotiations between commercial tenants and landlords before the new legislation being rolled out, the Government has:

  • Extended to 25th March 2022 (unless legislation is introduced before this) the current restriction on the use of the Commercial Rent Arrears Recovery (CRAR) process, which limits a landlord from seizing goods owned by their commercial tenant in place of unpaid rent payments, unless the tenant has more than 554 days’ worth of rent arrears.
  • The restrictions in respect of serving a winding-up petition on the basis of a statutory demand rolled out via the Corporate Insolvency and Governance Act 2020 has been extended until 30th September 2021.

As the Government has indicated throughout the pandemic, those businesses who have not been impacted by lockdown and other restrictions are expected to pay their rent. Additionally, the Government expects tenants to recommence paying their rent from the point that the restrictions in their associated sector have been lifted.

Once the new legislation has been passed, the procedure will only apply to ring-fenced rent arrears – e.g. debts accrued by commercial tenants since March 2020 as a result of pandemic restrictions until they have been removed for their sector.

Consequently, tenants can be evicted by their landlords for the non-payment of rent before March 2020 and after the restrictions for their sector have ended. Those who have not been affected by Covid-19 restrictions but have still accrued rent debts can also face eviction proceedings.

The Government has said that these measures trigger the start of a return to ‘business as usual’, by re-balancing protections for commercial landlords, continuing to provide support to those businesses who are most in need and that debts due to the pandemic can be resolved to mutual benefit in a quick and timely manner.

The rise in rent arrears caused by the pandemic

According to data released by the British Property Federation (BPF), they estimate that by the end of June 2021, £7.5 billion of commercial rent will be in arrears. Other data published by Remit Consulting estimates that of 30th March 2021, £5.3 billion of business rents since March 2020 were unpaid and roughly half of this amount (£2.8 billion) was in the retail industry, which is little surprise being that non-essential retail in England was closed for longer than it was open in the last financial year.

Further comments made and data referred to by the Government includes:

“We have seen that turnover is not yet fully recovered, particularly in vulnerable sectors such as hospitality. Rent collection increased in September, December and March, although remained lower than normal. The most recent data from Remit Consulting indicates that while overall commercial rent collection is at 80.7% at 90 days past the March due date, £1 billion of rent is missing from the March quarter, totalling a potential shortfall of up to £6.4 billion since the start of the pandemic.

“Hospitality rent payment continues to lag behind, with just 58.6% of rent collected within the same period; this is particularly acute in the pubs, bars and restaurants sector, with just 28.4% of rent paid 90 days after the March payment date.

“Whilst we have provided an unprecedented package of support, we have also been clear that we expected landlords and tenants to come together and negotiate over the past year. Agreements have been reached for many businesses, but for others, negotiations have stalled, leaving rent arrears built up which could threaten many of the valued jobs that the sector provides.”

commercial rent arrears pandemicHow Nelsons can help

Simon Waterfield is a Partner in our Property Disputes team.

If you would like any advice concerning the information outlined in this article, please contact Simon or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online enquiry form.