Commercial rents and the end of the moratoriums
The various enforcement moratoriums and restrictions (whether that be re-entry / forfeiture, commercial rent arrears recovery, insolvency proceedings, or otherwise) are currently due to expire at the end of June, by which point a further quarter of rent will have fallen due.
The moratoriums have, of course, been extended before – with the government previously saying it wouldn’t happen again. However, even the June expiry date is not guaranteed – the government announced a consultation last month on what to do about commercial rent arrears when the restrictions end, and a number of different options are on the table.
The government has proposed six alternative options for possible next steps, as follow:
- allow the current moratoriums, etc. to expire on 30 June 2021;
- allow the moratorium on forfeiture to lapse on 30 June 2021 but retain the insolvency measures and additional rent arrears amendments to CRAR (commercial rent arrears recovery) for a period of time;
- target existing measures to businesses based on the impact that COVID restrictions have had on their business for a limited period of time;
- encourage increased formal mediation between landlords and tenants;
- non-binding adjudication between landlords and tenants; and
- binding non-judicial adjudication between landlords and tenants.
Clearly, it is possible that some, or all, of the restrictions may therefore continue – or that they may be replaced with alternatives. It is a difficult balancing act, but allowing evictions to proceed whilst retaining restrictions on insolvency measures seems a little perverse. In most cases (and particularly hospitality), if leases are forfeited and the locks changed, then insolvency may necessarily follow in any event, if there are no premises from which to trade. As such, this approach would simply save Landlords from incurring Petition Costs, and ‘pass the buck’ in that respect to other creditors (either directly, or via a further reduction in Tenant assets when it does enter an insolvency process).
Forcing parties into mediation or adjudication may also be detrimental – and could even lead to an inequality of arms: if a party is strapped for cash, they may be reluctant or unable to properly engage with the process. Taking a more gentle approach and simply ‘encouraging’ mediation or adjudication is also unlikely to resolve matters – this would appear to do little more than replicate the existing COVID-19 commercial property Code of Practice that the government previously issued, but which is not binding. Certainly, if landlords and tenants have failed to reach agreement on rent payments over the last year, then ‘encouraging’ them to engage now is probably unlikely to change things. Nevertheless, one has to hope that the looming deadline prompts parties to try and reach agreement voluntarily, rather than risk further uncertainty.
In any event, the government wants to hear from landlords and tenants alike so, if you have any suggestions and / or want to complete it, please click here. The deadline, however, is 11:45pm on 4 May 2021.