Government aims to resolve commercial rent disputes with new legislation

The Government has published a policy statement on measures it is introducing in relation to the resolution of commercial rent arrears accrued during the pandemic. The British Property Federation estimates commercial rent arrears total £7.5 billion to the end of June 2021.

The Government proposes to introduce new legislation setting out a binding arbitration process between landlords and tenants.

What do Landlords and Tenants Need to Know?

The following will be of use to both landlords and tenants:

Arbitration will be a last resort. Landlords and tenants will be expected to negotiate first but go to arbitration if they cannot reach an agreement.
The arbitrator will be able to make costs awards and can penalise a party who has negotiated in bad faith.
The existing date for the lifting of the restriction on forfeiture for rent arrears (currently 25 March 2022) may be changed once the proposed legislation is passed.
As soon as the legislation is passed, the commercial tenant protection measures will only apply to ring-fenced arrears (e.g. arrears which have accrued from March 2020 by commercial tenants affected by Covid-19 business closures until restrictions for their sector are removed).
Once the legislation is passed, it is anticipated that landlords will be able to evict tenants for non-payment of rent prior to March 2020 and after the end of restrictions for their sector.
Tenants not affected by the pandemic will be required to pay rent.
Contractual interest (provided for within the lease) will accrue on arrears from the end of the ring-fenced period.
Tenants should clearly state in writing to the landlord how payments of rent are to be treated, specifying the period of time that the payment should be apportioned to.
Landlords will be able to evict a tenant not impacted by the pandemic for non-payment of rent.
The existing Code of Practice will be updated.
Landlords will continue to be able to evict a tenant for breaches other than arrears (such as property damage or unlawful sub-letting).

What Options do Landlords Have?

Landlords continue to have options to enforce breaches of tenant’s obligations including the following:

Issuing a money claim.
Drawing down a rent deposit.
Claiming against a guarantor.
Forfeiture for breach of covenant other than rent.

Butcher & Barlow LLP

Our specialist landlord and tenant team continued to work with clients and their professional advisers across multiple industry sectors to provide advice on how best to manage their portfolios including the recovery of rent and service charges during this period. Contact the team on 01606 334309.