COVID Moratorium – an astonishing intervention into the Real Estate market

Commercial tenants who are unable to pay rent having had to remain closed during the pandemic will continue to be protected from eviction until 25 March 2022, whilst statutory demands and winding up petitions will remain restricted for a further three months.

It was, perhaps, predicable that the restrictions on forfeiture and other landlord enforcement options would be continued – however it was not anticipated that the extensions would last into 2022.

In another terse announcement, it has just been confirmed by the Government that restrictions on forfeiture of leases for unpaid rent will continue until 22 March 2022.

The restriction on the use of Commercial Rent Arrears Recovery (CRAR) will also continue with 554 days of arrears being required before CRAR can be used.

Meanwhile, the Government has announced that legislation will be introduced in this Parliamentary Session to ringfence rent arrears which have built up during periods where the pandemic has forced businesses to remain closed. This will expect landlords to reach agreement with their tenants and make allowances for the arrears from these periods and share the financial impact with their tenants, possibly through waiving part of the arrears or agreeing a repayment plan.

Where agreement cannot be reached - the legislation is set to introduce a binding arbitration process to enable a formal resolution.

It is not yet entirely clear how this will apply – as the Government announcement on the one hand says that it will apply to “all businesses” but on the other hand says that the new measures will “only cover those impacted by closures”.

Even more cryptically, the announcement then says:

“This means that rent debt accumulated before March 2020, and after the date when relevant sector restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protection measures are lifted”

We will need to see the detail but this suggests that:

1. The ringfencing will only be relevant to periods of “closure”

2. Ringfenced debt will not be actionable even after the forfeiture moratorium ends in March 2022.

Some landlords have successfully pursued their tenants and their arrears by debt actions and the tenants’ defences have been rejected by the courts. It may be that such actions will not be able to proceed if they relate to ringfenced debt.

It is not yet known if the ringfencing will be applied generally or limited to sectors such as hospitality and entertainment. However, the Government has continued to stress that businesses which are open or otherwise able to do so must pay their rent.

Lastly, the Government repeated its intention to look at 1954 Act reform – to include consideration of new rent models.