On 9 December 2020, the government announced that the ban on eviction of commercial property tenants will be extended until the 31 March 2021. The moratorium on commercial landlords exercising forfeiture rights for non-payment of rent was due to end on 31 December 2020, meaning the ban will have lasted just over a year since the relevant section of the Coronavirus Act 2020 was enforced on 25 March this year.
Therefore, commercial tenants are currently benefitting from COVID-19 specific protections such as:
- a temporary prohibition on landlords exercising forfeiture provisions as a rest of tenant’s failure to pay rent;
- restrictions on the use of statutory demands and winding up petitions to encourage tenants to pay rent; and
- a requirement that before Commercial Rent Arrears Recovery proceedings can be exercised, rent arrears of at least 256 days’ or 366 day’s should be outstanding, depending on whether it is exercised before or after the December 2020 quarter’s rent becomes due.
The government has also declared it will be extending these restrictions for the same period, which were all going to expire on 31 December 2020. This is said to be a “final extension” which “will give landlords and tenants 3 months to come to an agreement on unpaid rent” and “allows businesses sufficient breathing space to pay rent owed”.
This year has been shambolic for the economy and businesses have been at the centre with otherwise viable shops, restaurants and even theatres facing the threat of insolvency.
With many businesses facing uncertainty over trading and staying open, paying their rent is just one of the numerous concerns that has come out of this year. It should not be forgotten, however, that property owners are businesses too and by removing the means by which they can ensure compliance by their tenants of the lease covenants, they are also at risk with reports claiming a £4.5 billion rent shortfall by the end of the year. The extension of the moratorium will provide little comfort to commercial landlords who have witnessed tenants refusing to pay rent when they are able to do so. There is also no way of determining whether these tenants will also proactively engage in negotiations to ensure they can pay rent that they can afford.
Further guidance to support negotiations between landlords and tenants is due to be publishes shortly, according to the government. This is in addition to the existing Code of Practice available for commercial property relationships during the COVID-19 pandemic (you can access the Code here). Given the voluntary nature of the Code, it has therefore had minimal impact and it is also unclear what, if any, benefit further guidance from the government will provide.
Although these measures seek to help tenants recover from the impact of the pandemic and provide a window of opportunity for struggling tenants to consider new arrangements with landlords and assess the success of Christmas trading, Landlords should also bear in mind the options available to them where a tenant is simply refusing to pay rent.
Landlords can still pursue a debt claim in the County or High Court and seek a monetary judgement for non-payment of rent. Although it should be noted that a debt action may incur time and cost consequences and might not result in payment quickly or at all.
Furthermore, as the automatic stay on possession proceedings ended on 20 September 2020, possession claims not based on forfeiture for non-payment of rent can be brought and/or reactivated. Procedural steps will need to be followed to reactivate proceedings that were previously stayed, and procedural changes will also need to be followed for existing and new claims. Given the risk of negative public relations which could arise for taking action against a struggling tenant during a crisis, in the first instance, landlords may wish to engage with tenant’s as the best option going forward.
If you are a commercial tenant or landlord requiring legal advice, please contact our expert team today.