UK COVID-19 Arrears: Guidance for landlords and tenants on the further extension to the forfeiture moratorium

Hogan Lovells

Hogan Lovells

The moratorium on landlords evicting commercial tenants has been extended by a longer period than many had expected, to March 2022.  Landlords and tenants will also be compelled to enter into arbitration proceedings if they fail to reach an agreement on ring-fenced rent arrears. At the same time, the restrictions on filing statutory demands and winding up petitions have been extended (again) until the end of September 2021.

The government yesterday (16 June 2021) announced the following extensions:

  • the forfeiture moratorium is to be extended from 30 June 2021 until 25 March 2022;
  • Commercial Rent Arrears Recovery (CRAR) can only be used where tenants owe at least 544 days’ principal rent; and
  • the temporary ban on the use of winding-up petitions where the inability to pay debts is caused by COVID-19, has been extended for a further three months.

The announcement follows responses to the Call for Evidence on commercial rents and COVID-19 issued by the government on 6 April 2021. 

Although tenants who can pay should pay (a message repeated on many occasions by the government throughout the pandemic), in order to assist the hospitality sector in particular, the government has promised legislation to “ringfence” unpaid COVID-19 arrears that have built up while premises have been closed.

Many questions are left unanswered by the government’s announcement.  Crucially, it is not yet clear which tenants the legislation will apply to.  For example, will the legislation only apply to tenants that were forced to close, as opposed to those who deemed it commercially unviable to open due to reduced footfall?  Will it apply to tenants who could only trade partially (i.e. takeaway service)? It is also not clear whether the legislation will, for example, be means tested in such a way that the tenant is required to prove it is unable to pay its rent. In a potential silver lining, this could free landlords to pursue tenants who fall outside of the ambit of the legislation but much will turn on the detail.  

The extension to the moratorium on commercial evictions is to allow time for negotiations to take place but the government has also confirmed that where parties cannot agree a mutually beneficial outcome in respect of COVID-19 arrears, new legislation will step in and compel the parties to a binding arbitration process to give parties “peace of mind” that the arrears will be “settled fairly, and with finality”.  However, no further information is provided and landlords (and others) will understandably be concerned with the suggestion that arbitrators may, it seems, be able to effectively impose rental settlements which override the terms of the lease.

In addition, the government also announced  that protection against the Commercial Rent Arrears Recovery (CRAR) process by landlords will be extended from 30 June 2021 to 25 March 2022. The total number of days’ outstanding rent required for CRAR will remain at 544 days. 

Finally, there will be a three month extension (from 30 June 2021 until 30 September 2021) on the blanket prohibition on statutory demands and the restriction on winding up petitions based on a company’s inability to pay its debts (unless the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company). This extension follows previous extensions of the prohibitions on filing statutory demands and winding up petitions.

Both landlords and tenants will be keeping their eyes peeled for what the legislation will look like and with tenants given almost another year to avoid forfeiture, landlords may be tempted to push ahead with pursuing claims for arrears via the courts in the meantime.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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