Further Extensions to the Restrictions on Commercial Property Forfeiture, CRAR and Insolvency Provisions

The Government announced yesterday, not unexpectedly, further extended the restrictions on commercial property forfeiture, CRAR and insolvency provisions from 31^st December 2020 to 31^st March 2021.  (https://www.gov.uk/government/news/business-evictions-ban-extended-until-march )

In a statement issued on 9^th December 2020, Ministers Alok Sharma and Robert Jenrick announced a further extension to the Moratorium on Forfeiture for Non Payment of Rent (by peaceful re-entry), Commercial Rent Arrears and Recovery (CRAR) and Pursuing Insolvency Processes to the 31^st March 2021.  This means that the period for which these restrictions have been in place will have lasted then for 12 months. 

The statement claimed that this will be the final extension to protections from the threat of eviction with the intention that Landlords and Tenants will have a further 3 month period to come to an arrangement in respect of unpaid rent. The Government has been quick to highlight that where a Tenant can pay any or all of their rent, they should do so. 

The Government previously published a voluntary Code of Practice to facilitate cooperation between Landlords and Tenants.  However, it has not really had any significant impact on negotiations.  Some tenants have agreed to provide evidence of their financial position to Landlords who have signed the standard non-disclosure agreement, but many others have not. 

At present Tenants know that the worse that can happen is a Court claim for debt which leads to a Judgment that can then itself be difficult to enforce while commercial premises are shut.  It is anticipated that further guidance will be published in early 2021, which may include an amendment to the existing Code or create new guidance which will operate alongside it.  It is unclear how this development would improve the position of Tenants with failing businesses or Landlords with no rent coming in.

What was of more interest in the longer term was that Mr Jenrick announces that there will be a review of “the outdated commercial Landlord and Tenant legislation”.

The purpose of this review will be to consider purportedly how to enable better collaboration between commercial landlords and tenants and improve the leasing process to ensure our high streets and town centres thrive as they recover from the pandemic and beyond.

Given the rough ride residential landlords have had in recent years, this announcement will leave commercial landlords, many of whom have suffered this year due to restrictions placed on them to recover rent and property, bracing for worst to come.

The Government does appear to have a somewhat jaundiced view that all Landlords are bad and all Tenants are good.  This may partly be from the perceived inequality of bargaining position in the marketplace. To date there has been little regard for the smaller Landlord, who may only have one or a few properties as part of pension planning or a small investment portfolio. Often these smaller landlords are pitched against tenants who have a national presence with dozens of units. 

It is not clear how much appetite the Government has for change or how quickly that change may take place.  It is also unclear how much involvement it will seek from commercial property stakeholders given the significant lack of consultation in the imposition and extension of the moratoriums restricting activity related to commercial leases during 2020. 

At this stage it is difficult to speculate at this stage on what might be included in the review. However, there are some areas of focus that may be likely candidates, such as:

• Further restrictions on the use of peaceable re-entry, meaning in most cases landlords may need a Court Order to forfeit.
• Restrictions on the use of CRAR without Court involvement.
• Encouragement for Landlords to take equity shares in their tenant’s businesses as was recently seen with the Grosvenor Estate. 
• Alternative models for rent payments, which could include more use of Turnover Rents or a mixture of guaranteed rent and “top-up” related to the success of the Tenant’s business.
• A potential ban on upwards-only rent reviews. 
• A review of business tenancy protection under the Landlord & Tenant Act 1954. 
• Amendments to the business rate system, reducing the inequality between those retailers with a shop front and those operating predominantly online.
• Further overhaul of the Town & Country Planning (Use Classes) System to cater for businesses offering combined offerings which may currently be restricted by having to fit into one particular Use Class.
• A review of insolvency processes, including CVA restructuring to make it more likely to save good businesses but allow failing businesses to be wound up for the benefit of creditors and shareholders more efficiently.

More announcements are expected in the new year. In the meantime, if you are looking at the plans for your portfolio in 2021 and beyond and would like any more information please contact claire-elaine.arthurs@gunnercooke.com.