On June 16 2021 the government announced an extension of the existing moratorium on landlord action for rent arrears under the Coronavirus Act, from 30 June 2021 (when it was due to expire) to 25 March 2022.
The extended moratorium restricts the ability of commercial landlords both to forfeit leases for non-payment of rent and to seize goods in payment of rent arrears under the Commercial Rent Arrears Recovery (CRAR) procedure.
Further features of the what the government proposes include:
- CRAR will become available if rent arrears exceed 554 days (ie approximately six quarters)
- There will be a "ring-fencing" of arrears from enforcement action for businesses (eg hospitality) who have had to remain closed during the pandemic and were unable to pay rent Landlords will be expected to share the financial "pain" with their tenants in these circumstances. However, the government is reminding other tenants who can afford to pay arrears that they must do so
- There will be a legally backed arbitration process that will eventually impose a settlement of rent arrears between landlord and tenant where consensus has not been possible. The moratorium extension to 25 March 2022 is intended to provide "breathing space" for this arbitration process to be worked through
- There will also be an extension on the existing restrictions against statutory demands and winding up petitions for rent arrears until 30 September 2021, although no extension has been announced to the suspension of directors' liability for wrongful trading
- A wider review of landlord and tenant legislation (including the Landlord & Tenant Act 1954) and models of rent payment (eg turnover rents) will be launched later this year.
Given previous extensions of the moratorium had only been for three months at a time, and landlords' representatives had lobbied government forcefully for no further extensions, a full nine month extension has taken the market by surprise. The three month extension to the restrictions on winding up petitions and statutory demands was more expected.
However the tenor of the government's announcement is that, now that COVID restrictions are likely soon to be released entirely, the issue of rent arrears should not be an ongoing one and tenants must recommence paying rent in full.
Although there is to be a scheme of "ring-fencing" and arbitration to resolve historic rent debts for businesses forced to close and who are unable to pay their rent, quite how this will work in practice remains to be seen, particularly with winding up petitions due to return six months before the moratorium expires. Legislation providing for compulsory arbitration will be unprecedented in this field and will require very careful scrutiny (when it is published) by both landlords and tenants to ascertain quite what their respective rights and obligations will be in respect of historic rent arrears.