Communities secretary Robert Jenrick has received a call from The Commercial Tenants Association, representing around 500 businesses, from retailers to office and hotel tenants, arguing that the government impose the tenants’ concession on commercial landlords.
With similar models having been adopted in the United States and Australia, such a waiver would release tenants from billions of pounds worth of outstanding debt.
It is estimated that around £6 billion of unpaid rent has built-up since the government imposed a moratorium on court action for arrears during the 2020 / 2021 lockdowns, which was extended in June this year until the 25th of March 2022.
The extension is said to have been imposed to avoid a cliff edge and a raft of business failures when other government support measures are lifted including business rates relief, VAT payment deferrals and as the furlough scheme comes to and end in the autumn.
Peter Bell, founder and chief executive of the association, has said:
“What we’re really calling for is for the government to impose a minimum of 50 per cent rental relief, in the form of a waiver to be agreed between the landlord and tenant. We think the government should be giving landlords some support with that.
“We’re hoping that arbitration is set up in a way that’s open, fair and transparent. We want to see a fair scenario where tenants are listened to and have an opportunity to present their financial position in private arbitrations versus going to court, which then becomes more public.”
Tenants have negotiated with their individual landlords with varying degrees of success, pressing them for rent holidays, rent reductions and changes to their lease contracts. Retailers, hospitality and leisure tenants have been particularly badly hit during long periods of closures.
Some tenants have managed to agreed turnover linked rent deals, while others not so fortunate have gone into administration or sought CVA protection.
Some landlords are struggling with their own debt repayments, while some have been frustrated when their well-capitalised retailer tenants including Boots, JD Sports and the Sports Direct owner Frasers Group appear to have taken advantage of the moratorium, resisting paying rent since the beginning of the crisis, while leveraging changes to their lease contracts.
The Commercial Tenants Association is now pushing hard for landlords to give rent relief of “no less than 50 per cent”, an offer which they say must be accepted within 21 days before going to arbitration under the new tenant protection rules.
Landlords on the other hand, are reluctant to enter into a phase of costly arbitration which they argue will give a third party the power to interfere with the landlord – tenant contract outside of the court system.
Rent recovery and protection
The government has placed significant restraints on landlords’ ability to recover outstanding rents.
However, landlords in England and Wales still retain the power to eventually recover rent and other sums due to them under commercial lease agreements despite the delays imposed by coronavirus legislation and government guidance and practice directions.
The options open to landlords in Scotland and Northern Ireland are different from those imposed in England and Wales.
Depending on individual circumstances and contracts, some landlords may find they are in a position to recover monies owing to them by tenants of commercial property from other indirect sources: former tenants, guarantors, recovering directly from subtenants, or through debt recovery proceedings.
In June last year the government published a UK wide code of practice for landlords and tenants of commercial property. This is a voluntary code endorsed by leading landlord and tenant organisations including the RICS. The main thrust is operating with “transparency and collaboration”, and the government’s aim is to encourage landlords and tenants to act “reasonably and responsibly” and negotiate sensibly.
Current restrictions include:
A ban on the forfeiture of commercial leases – Section 82 Coronavirus Act 2020 currently prevents any forfeiture between 26 March 2020 and 30 June 2021, whether by proceedings or peaceable re-entry, of the vast majority of commercial leases for non-payment of any sums due under the lease, extended until 25 March 2022.
A stay of all possession proceedings – Practice Direction 51Z prevented all possession proceedings for 90 days from 27 March until 25 June 2020. This period was initially extended until 23 August and was then further extended until 30 September 2020. Practice Direction 55C (as amended, following the further extension) provides for the resumption of possession proceedings now the stay has expired.
With claims issued before 3 August 2020, the landlord must serve a ‘reactivation notice’ in order for a stayed claim to be listed or relisted. If there is already a trial date, the landlord must serve the reactivation notice no later than 42 days before the hearing date.
Commercial Rent Arrears Recovery (CRAR) – The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 prevented landlords from using CRAR unless an amount of at least 90 days’ rent was due (it had previously been seven days or more). This amount has been increased several times to 554 days’ rent on 24 June 2021. This restriction is to apply until 25 March 2022.