Where are we now on Commercial Rent Arrears?

September 16, 2021
Claire-Elaine Arthurs


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After the turmoil of the last year many commercial tenants are now in arrears. Numerous restrictions have been in place and most landlords were left with the only viable options for recovery being drawing down on deposits and debt claims.

Going forwards it is clear that the Government intends to support tenants with pandemic related rent arrears going forwards. Its current policy statement confirms that:

  • Legislation will “ringfence” arrears relating to periods of enforced closure from March 2020 until restrictions for the tenant’s sector were lifted
  • Landlords and tenants are expected to try to negotiate and agree any possible waivers or deferrals of rent arrears. However, if agreement is not possible, new legislation will introduce a process of “binding arbitration” to resolve any outstanding disputes. Details of this scheme are awaited.
  • A “strengthened” code of practice will be introduced by legislation which will contain the principles which both parties and the arbitrators must have regard to during negotiations and any subsequent arbitration.
  • Tenants who can pay, should do so. Furthermore, tenants will no longer enjoy protections in respect of rent arrears falling due outside of the “ringfenced” period and should pay these arrears in full.

While we await legislation to put these policies into force, there are a number of unanswered questions:

Will the legislation extend to all commercial tenants?

The new legislation will only apply to those tenants who have been “impacted” by COVID-19 business closures. However, we do not know at this time how broadly impact is going to be defined or what evidence a tenant might need to present to prove this criteria is met.

The pandemic has affected different businesses in different ways. For example, essential retailers, will have been able to legally keep their premises open but may have suffered from reduced footfall during lockdowns. Some offices may not have suffered enforced shutdowns but may have suffered losses as a result of other restrictions. Therefore, how this requirement is defined will have a significant bearing on the impact of the new legislation.

How will “able to pay” be ascertained?

While many tenants may have suffered a drop in revenue throughout the pandemic, there are a large number who still are in a position to settle any outstanding arrears. The new legislation will need to take into account those businesses who have been able to trade profitably despite closures, such as through an increase in online sales or take away services, and consider whether they would be entitled to benefit.

Given the Government’s clear preference for tenants to pay arrears where they are able to do so, it is likely that a high degree of disclosure of financial information will be required to evidence why payment of the outstanding rent was not possible. Such information sharing may be unattractive for some businesses and will certainly be a strategic consideration for landlords and tenants as they navigate the new process.

What will happen to existing proceedings?

Debt claims is one of the only viable methods of recovery for landlords at present so many have already been issued and are making their way through the courts. It is not clear what impact any new legislation might have on cases that have already been issued. It is possible that proceedings will be automatically adjourned by the new legislation, although the cost consequences of this remain unclear.

If you wish to discuss your strategy in anticipation of the new legislation, please get in contact so we can help you best prepare for when the scheme does come into force.