When Chief Secretary to the Treasury, Stephen Barclay, recently extended the moratorium on evicting commercial tenants for non-payment of rent until 25 March 2022, the legislation was hailed as a further lifeline to tenant businesses struggling due to the pandemic.
Since the beginning of lockdown restrictions the government have sought to protect tenant businesses adversely impacted by Coronavirus, particularly those hardest hit in sectors such as hospitality. With the current Furlough scheme due to end in September, many businesses are struggling to plan and fund their recovery, while acknowledging and dealing with rent arrears and landlord disagreements.
Jonathan McMaster, Head of Commercial Property at Astraea Legal is advising landlord and tenant businesses who need legal advice and guidance due to the implications of the latest moratorium.
Jonathan, who specialises in landlord and tenant issues, development work, property finance and property investment said “By the time the moratorium comes to an end, it will be two years since the beginning of the pandemic. What landlords and tenants considered reasonable at the start of the pandemic and two years down the line are two very different things. The key for all parties is to have initial and ongoing discussions in a timely manner in order to deal with issues such as the current rent level and any rent arrears.”
Jonathan has given an insight into some of the most frequently asked questions and guidance on finding a mutually agreeable solution for landlords and tenants.
- Can a landlord force a tenant to pay rent before the end of the moratorium?
A tenant should continue to pay its rent if it is capable of doing so. The contractual arrangement between the landlord and the tenant continues to exist and therefore so does the requirement to pay rent under the lease. Just because there is a moratorium currently in place on evicting a tenant does not mean that a tenant should act any differently if it is capable of doing so. If a tenant is not able to pay its rent in full then a landlord and a tenant may wish to consider what its options are.
- We are a tenant who is struggling to pay its rent. What options do we have?
Speak to your landlord as soon as possible. Do not avoid the issue and create problems for yourself further down the line. A solicitor can assist you with your discussions with the landlord if required.
In the course of the pandemic we have seen landlords and tenants working with each other at this unique time. There is the advantage for the landlord of revenue continuing to come in and certainty for the tenant on where they stand going forward.
It has been common for agreements to be made to reschedule a tenant’s rent payments or extend the length of the lease. Whatever is agreed between the parties, be sure to document the agreement properly using legal advice. I have seen a number of “informal” agreements which were agreed at the beginning of the pandemic unfortunately now turn into costly disputes.
- What other restrictions are currently in place which landlords and tenants should be aware of?
In addition to the moratorium on forfeiting a lease for non-payment of rent, two other options normally available to a landlord in the event of a tenant not paying its rent are also restricted:
- The Commercial Rent Arrears Recovery (CRAR) process used by landlords will be extended also until 25 March 2022. 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 and statutory demands where the inability to pay debts is caused by COVID-19, has been extended until 30 September 2021.
- What options remain available to a landlord with the moratorium in place?
With the above restrictions currently in place, a landlord may wish to consider one of the following options:
- Forfeiting the lease for breaches of covenant other than non-payment of rent
- Exercising a landlord break clause
- Suing the tenant
- Pursuing any guarantors
- Recourse under a Rent Deposit Deed
- Our lease has a tenant break clause in it. We can just exercise that can’t we?
This can be a useful mechanism to assist a tenant but particular attention must be paid to the conditions in the break clause. For example, if basic rent needs to be paid up to date and the tenant has a concession in place about the amount of rent to be paid, care must be taken to ensure that the condition has been adequately satisfied.
- I have premises in both England and Wales. I have heard they have differing approaches.
This is correct. The moratorium in England is scheduled to last until 25 March 2022 at present. The moratorium in Wales is scheduled to last until 30 September 2021 at the time of writing.
If you would like expert advice to resolve any commercial property related issue, please contact Jonathan McMaster by email at JonathanMcMaster@astraealegal.com or by telephone on 0330 128 1660
Telephone: 0330 1281660