Commercial landlords were dealt another blow last week as the measures preventing forfeiture of leases for non-payment of rent (including service charge and insurance rent) had yet another extension. The initial timescale for protections was 26 March 2020 until 30 June 2020, but this has been extended several times due to the nature of the pandemic. Measures were due to be lifted on 30 June 2021, but now commercial landlords will have to hold out until 25 March 2022.
While the protection is in place, landlords cannot enforce their right of re-entry or forfeiture for non-payment of rent. They also cannot use the commercial rent arrears recovery (CRAR) procedure if the minimum net unpaid rent is less than 554 days.
Furthermore, a creditor (such as landlords) cannot present a winding up petition unless the creditor has reasonable grounds for believing Covid-19 has not had a financial effect on the company, or that the company’s debt issues would have arisen in any event. These measures have been extended for the fourth time and are currently due to expire on 30 September 2021.
What can a landlord still do?
They can still enforce their right of re-entry for other breaches in the lease. Landlords do need to give tenants a reasonable period to remedy any such breaches; this ‘reasonable period’ may be longer than usual in these uncertain times, so they will need to tread carefully.
Landlords can, subject to the terms of their rent deposit deed, draw on any rent deposit they are holding. They can also continue to claim against any guarantors or previous tenants if an authorised guarantee agreement is in place.
What happens next?
The government have announced that they expect to introduce legislation to ‘ringfence’ unpaid rent that has accrued while a business has had to remain closed during the pandemic. The government are expecting landlords to share the financial impact with their tenants by either waiving some of the arrears or agreeing a longer-term repayment plan.
If no agreement can be reached between the landlord and tenant, the new law will impose a binding arbitration process on both parties. The only crumb of comfort offered by the government was by making clear that businesses who can pay rent must do so, particularly if they are open and trading.