Ringfencing rent arrears

Communities Secretary, Robert Jenrick, announced yesterday that legislation will be introduced in this parliamentary session to ringfence outstanding unpaid rent that has accrued where businesses have had to remain closed during the pandemic.

Commercial landlords will be expected to make allowance for arrears relating to specific periods of closure and to share the financial impact with their tenants.

The proposed legislation will require landlords and tenants to work together to agree how arrears are to be dealt with, for example, by waiving some of the debt or agreeing a longer-term repayment plan. Where agreement cannot be reached, a mandatory arbitration process will kick in.

Proposed 9 month extension to restrictions on forfeiture and use of CRAR

In a further blow for commercial landlords, the current measures in place to protect commercial tenants from eviction are to be extended to 25 March 2022. Existing restrictions on the ability of landlords to recover rental arrears through the Commercial Rent Arrears Recovery scheme ("CRAR") are also to be extended to March 2022.

Whilst the aim appears to be to protect sectors such as hospitality and leisure who are still unable to open fully or at all, the current restrictions are not limited to any specific sector and, given that the Government simply refers to extending these current measures, it appears that the new legislation will apply to all businesses.

Will the proposed legislation go through?

The proposed legislation could, in theory, be defeated by a vote in either house of Parliament. However, this seems unlikely given the consistent moves to prioritise the interests of tenants' businesses over the interests of their landlords.

What next for landlords?

Recent High Court decisions have made it clear that landlords may still sue tenants for rent arrears.

In addition, the restrictions on forfeiture only apply to rent arrears cases and not where, for example, a tenant is insolvent or has committed some other breach of the terms of its tenancy (which does not relate to making any payment).

Whilst the current restrictions on the use of CRAR have been extended, this remedy will be available where a tenant has at least 6 quarters' rent in arrears. As such, where a tenant has not paid any rent since the start of the pandemic, the minimum 554 days net arrears may be achieved by the end of September.

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