Restrictions on commercial lease forfeiture extended until 2021

Commercial tenants in rent arrears will be protected from eviction until 31 December 2020, in a bid to protect businesses from going under as winter approaches. The measure, which was initially due to end on 30 June 2020, was first extended to 30 September and then to the end of 2020 against a backdrop of rising coronavirus cases, with local lockdowns and restrictions likely to have a serious impact on affected businesses.

What is the significance of the new deadline?

Many businesses still pay their rent according to the traditional ‘quarter day’ system, which has been in place for many hundreds of years. These dates fall on 25 March, 24 June, 29 September and 25 December each year. Extending the moratorium until the end of the year means that businesses are covered for both Q3 and Q4 quarter days, and will have until 25 March 2021 before another rental payment becomes due.

Restrictions on Commercial Rent Arrears Recovery to continue

The exercise of Commercial Rent Arrears Recovery (CRAR) was also restricted by the Coronavirus Act 2020; these restrictions have likewise been extended until 31 December 2020. It is hoped that by doing so, more businesses will have a better chance of recovery over the autumn and Christmas seasons. Essentially, the changes mean that:

Before 24 December:

A landlord can only exercise CRAR if a tenant owes at least three quarters’ (276 days’) rent.

After 25 December:

A landlord can only exercise CRAR if a tenant owes at least a year’s (366 days’) rent.

Tenant obligations still stand

It is important to note that the fact that landlords are prevented from forfeiting a lease on the grounds of rent arrears and restricted in their use of CRAR does not mean that tenants are not still obliged have to pay their rent. Where they are able to do so, tenants must continue paying their rent as normal, and failure to do so can still have consequences. Landlords are still able to pursue the tenant for rent arrears in other ways (such as money claims) or implement CRAR where the rent has been outstanding for the requisite time.

The impact on commercial landlords

Even so, commercial landlords are set to miss out on a massive £4.5bn in rent between mid-March and the end of 2020, according to research. On September quarter day, landlords collected just 22.1% of commercial rents, compared to 18.2% on June quarter day. On a more positive note, June’s figure had risen to nearly 70% two months after June quarter day, so it is likely September’s figure will also rise significantly. Even so, Tom Wallace, Chief Executive of property software company Re-Leased, said: “This is a substantial level of debt that runs into the billions, placing huge pressure on landlords.”

Both parties encouraged to use Code of Practice

In a press release published on 16 September, the government encouraged both landlords and tenants to work together to agree payment options if businesses are struggling, according to its Code of Practice for the commercial property sector. Both landlords and tenants are advised to take advantage of state financial support, including loans, grants and business rates relief, and to engage with their lenders and finance providers to seek flexible support.

Seek advice as December fast approaches

While the extension will come as a relief to many tenants, for landlords it’s a different story as they continue to lose money, threatening the survival of their own business. With the courts now facing a huge backlog of cases once the moratorium ends, landlords should seek legal advice now to avoid delays as far as possible in 2021. To get in touch, please contact our Commercial Dispute Resolution team.

-Alev Tonks 

Sources:
https://www.theguardian.com/business/2020/sep/27/as-rent-day-looms-its-the-landlords-turn-to-be-worried
https://www.egi.co.uk/news/landlords-collect-22-of-rents-on-september-quarter-day/

 

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