Real Estate Bulletin – August 2021

Government issues policy statement on commercial rent

On 4 August 2021 the government issued a policy statement on supporting businesses with commercial rent debts together with responses and analysis in relation its recent call for evidence on commercial rents.

Key points from the policy statement

• The binding arbitration process that is to be introduced by legislation should be used as a last resort.
• Ahead of a system of binding arbitration being in place, the government will publish the principles that they will expect parties and arbitrators to adhere to in a revised code of practice, to allow landlords and tenants time to negotiate on that basis.
• The current restrictions on forfeiture will continue until 25 March 2022 unless legislation is passed ahead of that date. Once legislation is passed, the restrictions on forfeiture will only apply to ringfenced arrears. The current restrictions on Commercial Rent Arrears Recovery (CRAR) will also be in place until 25 March 2022 (again, unless legislation is passed in the interim).
• The government messaging that tenants who can pay should pay continues, as does the government's stated expectation that commercial tenants should begin paying rent as per their leases from the point of restrictions being lifted for their sector.
• Details are to follow, but the policy statement gives some insight as to what will be expected of the parties:
  • "terms to be agreed between landlords and tenants impacted by closures to defer or waive entirely an appropriate proportion of those rent arrears. But, where agreement cannot be reached, both the landlord and tenant will need to undertake binding arbitration";
  • in relation to forfeiture:
    • landlords will be able to exercise their rights to evict any tenant for the non-payment of rent debt incurred prior to March 2020 and from the end of the ringfenced period; and
    • the new legislation applies only to debt for tenants impacted by COVID-19 business closures. Landlords will be able to evict any tenant who falls outside the scope of arbitration legislation over the non-payment of rental arrears accrued at any time;
  • if the lease provides for interest to accrue, landlords will be able to charge interest on rent due from the end of the ringfenced period onwards; and
  • "tenants and landlords to contribute to the cost of arbitration if both are found to have negotiated in good faith. However, if any party is found not to have negotiated in the spirit of the legislative principles, arbitrators may be empowered to grant the cost of arbitration as part of their decision".
    The stated aim is to deliver an impartial and manageable arbitration process.

The Covid-19 restrictions on statutory demands, winding up petitions and winding up orders also remain in place until 30 September 2021. The policy paper states that further measures relating to landlords' ability to use insolvency measures to recover rent arrears will be announced in due course.

The paper also notes that the government has been working with the devolved administrations to share details of the government's approach and to explore whether these measures could benefit businesses there, and whether they should be extended.

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