Aug

Consultation on commercial rent arrears – the evidence is in

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Government policy throughout the COVID-19 pandemic has been to help viable businesses – and the millions of jobs that they provide – to survive.

Early on the government introduced measures to protect tenant businesses from the threat of eviction or insolvency when they found themselves unable to pay their rent due to restrictions on trading.

These measures coupled with a code of practice published with the help of industry bodies have encouraged many landlords and tenants to come together to agree to share the impact of the pandemic in fair and sustainable ways.

Many landlords agreed to waive or defer some or all of the accumulated rent debt to enable their tenant businesses to survive, preserve jobs, and make their contribution to the recovery. However, there have remained many landlords and tenants that have been unable to reach agreement on this, and the level of accumulated rent debt still threatens the existence of many tenant businesses and in turn the millions of jobs they support.

What’s the true picture?

To get a true picture of the situation on the ground the government launched a consultation process, a call for evidence inviting landlords, tenants, and other interested parties to describe their experience in seeking to negotiate settlements of rent debt during the pandemic.

The thinking is that this evidence and the views of stakeholders will be used when deciding on the various options for withdrawing or replacing the existing tenant protection measures as the country moves towards a recovery from the pandemic.

The consultation elicited around 500 responses. Based on the evidence received the government announced on the 16^th of June that legislation is to be introduced during the current parliamentary session to work towards an orderly resolution of rent arrears accrued by commercial tenants over the period of the pandemic to-date.

The new legislation is to ringfence rent debt accrued from March 2020 for tenants who have been impacted by COVID-19 business closures until restrictions are removed for their sector. It will also introduce a system of binding arbitration between landlords and tenants.

Arbitration is seen as a last resort, after encouraging negotiations to take place between the parties to work towards and amicable solution. Ahead of the legislation the government is to publish the principles on which the legislation is to be based in the form of a revised code of practice, giving landlords and tenants time to negotiate on that basis.

Eviction ban

Section 82 of the Coronavirus Act 2020 currently prevents landlords of commercial properties from being able to evict tenants for the non-payment of rent and this will continue in force until the 25th March 2022, unless new legislation is passed in the meantime to change this.

The government expects those tenants who have not been affected by closures and who have the means to pay, should pay. Additionally, government expects commercial tenants to begin paying rent as per their lease from the point of restrictions being lifted for their sector.

As soon as the new legislation is passed, the moratorium on evictions will only apply to ringfenced arrears. This includes rent debt accrued from March 2020 by commercial tenants affected by COVID-19 business closures until restrictions for their sector are removed.

This means that landlords will be able to evict tenants for the non-payment of rent prior to March 2020 and after the end of restrictions for their sector, and who have not been affected by business closures during this period.

What were the options?

The two most favoured options for withdrawing protection measures based on the consultation responses were to allow the tenant protection measures to lapse on the 30th June 2021 (89.5% of responding landlords were in favour of this option) and to introduce a scheme of binding arbitration to resolve rent debt (66.3% of responding tenants were in favour of this measure).

Overall, 57.3% of respondents were against letting measures expire on the 30^th of June, whilst a significant group (33.7%) were in favour of it. 49.2% of respondents were in favour of binding adjudication, whilst only 27.4% were against it.

A dichotomy of views

Acknowledging that there was a clear dichotomy of views expressed by landlords and tenants the government had to consider its options in the light of its original policy objective; to preserve viable tenant businesses and the millions of jobs that they support.

This has led to the decision to bring forward legislation to ringfence rent debt accumulated during enforced closures and to set out a process of binding arbitration to be undertaken between landlords and tenants that are still unable to reach agreement on rent debt.

UK Hospitality estimates that around 332,000 jobs could be lost in the hospitality sectors if measures expired on the 30^th of June – about a sixth of the remaining workforce of 2 million.

The government’s decision also acknowledges the fact that a number of large commercial landlords, together with sector representative bodies from both landlords and tenants, have recently published proposals for binding arbitration and the ringfencing of rent arrears independently of the call for evidence.

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