Moratorium on commercial evictions
The moratorium on “aggressive” action by landlords on their commercial tenants that breach the terms of their leases has been extended until 25 March 2022. Real Estate partner Owen McKenna explains.
What is the moratorium?
In April 2020 as part of the government schemes to assist struggling businesses through the pandemic, the government introduced a moratorium under the Coronavirus Act 2020 in which during the period 26 March 2020 to 30 June 2021:
* there is a prohibition on a landlord taking steps to forfeit (evict) a business tenancy on the grounds of non-payment of rent and other sums falling due under the lease; and
* where forfeiture proceedings were commenced before 26 March 2020, any date for possession cannot be before 30 June 2021.
What has now changed?
On 16 June 2021 the UK government announced that it was extending the ban on evicting businesses from their premises and introducing a mandatory arbitration process to tackle debts where landlords and tenants cannot agree. The moratorium was due to end on 30 June 2021 but has now been extended until 25 March 2022.
How is the extension likely to be received?
The changes will provide a further temporary relief for thousands of businesses that were potentially facing the threat of forfeiture if they were unable to pay the rents due under their leases of commercial premises. With lockdown restrictions now extending until 19 July 2021 and many food, drink and entertainment venues remaining closed and/or operating at less than full capacity, many within the hospitality sector had warned of catastrophic consequences without a longer grace period.
Steve Barclay, the chief secretary to the Treasury, told parliament on 16 June 2021 that the government was taking action because of the “threat to jobs” and said: “We believe this strikes the right balance between protecting landlords and supporting those businesses that are most in need”.
It appears that the moratorium on lease rents will last until the Treasury has legislated to create an arbitration system for landlords and commercial tenants by spring next year. New laws would provide a “backstop” where commercial negotiations over rent payments were not successful and would provide a “a long-term solution to the resolution of Covid-19 rent”.
The measures protect commercial tenants from eviction until 25 March 2022 but only make arbitration mandatory for periods when businesses were forced to close by government lockdown edicts. Any agreement on payment of rent during periods when a business could trade will be a matter of negotiation between landlords and tenants. Whilst evictions will be blocked until March 2022, it is important to be aware that statutory demands and winding-up petitions relating to rent arrears arising during the pandemic will only remain restricted until the end of September 2021.
Helen Dickinson, the chief executive of the British Retail Consortium, the trade association for retail businesses, commented: “This is a very welcome announcement, addressing an issue of vital importance in the nick of time. We will be looking closely at the details, but welcome the continued support provided by government to businesses.
“Just as retailers feared a wave of legal action by landlords, the government has stepped in to offer both landlords and tenants more time to negotiate. The last 15 months have seen extended periods of forced closure for retailers, preventing many from making the turnover needed to cover rents. Retailers need time to trade their way out of debt; this announcement does exactly that.”
Not all sectors of the property industry welcome this announcement
Not all sectors of the property industry however will welcome this announcement. The British Property Federation (BPF), which represents owners, developers, funders, agents and advisers within the real estate industry in the UK, recently published data on the moratorium on commercial property evictions, which shows that out of 16,320 retail, hospitality and leisure property leases across the UK, 50% of rent owed since March 2020 has been paid, while agreements, including new payment plans, waivers, and rent holidays and deferrals, have been reached between property owners and tenants on further 27% of rents. Consequently, only 23% of rents owed since March 2020 remain unsolved.
However, the data also shows that 14% of tenants, who are predominantly well-capitalised businesses who have traded throughout the pandemic, are unwilling to speak to those property owners open to collaborating and reaching an agreement on owed rent. The BPF were therefore urging the government prior to the government’s announcement on 16 June 2021 to lift the moratorium, as it says it is merely “serving to perpetuate bad behaviour among a small minority of the market, starve small property owners of income and inhibit vital investment in our town centres”. In addition, the BPF highlighted research conducted by Remit Consulting, which shows that, since March 2020, commercial property rent arrears have amassed to £6bn. The BPF is calling this an “unprecedented and damaging intervention in the normal rule of contract law’ and emphasises that ‘the longer the moratoriums continue, the longer abuse will continue, which restricts support available to those businesses who truly need it.”
Ultimately, many feel there is a case to be made for a long-term programme which develops more actions to protect local high streets and small business owners. If you would like to discuss the matters raised here, please get in touch with our team of expert lawyers today.