Commercial Property Rent Arrears – What’s the latest?

At present, commercial property landlords are banned from taking forfeiture proceedings for rent arrears accrued during the pandemic period until 25 March 2022.

The government has recently issued a policy statement indicating legislation will be forthcoming to ring-fence rent debt accrued during the pandemic.

It would appear from the policy document that only businesses affected by the various enforced closures will be affected. 

Binding Arbitration

The policy statement encourages landlords and tenants to reach agreements which defer or waive a proportion of the arrears owed for periods of business closure. At the same time, it says tenants who can pay, should pay.

The government indicates there will be a strengthened Code of Practice. Therefore, it appears we are likely to see a system of binding arbitration which will be a last resort if all negotiations have failed.

The government has not indicated how in practice this binding arbitration will be set up.

What will happen on 25 March 2022?

The government plainly wants to trigger a “business as usual” environment but it realises that for businesses forced to close during the pandemic period, this will just not be possible. The intention appears to be to ring-fence pandemic period arrears which will be subject to the binding arbitration.

Whether the arbitrator will have power to order a landlord to take less than the full amount of rent due has not been addressed.

Back to normal?

The government is trying to get matters back to normal in the commercial property sphere and it seems to be assuming that businesses and offices will be back to being fully manned by 25 March 2022. In support of this, there are reports that some Ministers are seeking to get civil servants to return to work in person now. Whether this will happen remains to be seen given that many of the largest private employers have indicated that hybrid working is here to stay.

Conclusion

What is extremely clear is that landlord and tenants need to be in negotiation now with regard to arrears accrued during the pandemic. It seems likely that landlords will be required to show that they have tried to come to terms with tenants and that they may have to pursue this through a new binding arbitration mechanism which is yet to be established. Landlords will need to be able to show a paper trail of reasonable negotiation.

More information

Commercial landlords and tenants can contact Stephen Eccles (01708 463 202) if further advice is required.   

This article was written by Stephen Eccles, Partner in our Commercial Property Litigation Team. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of August 2021.