After a burst of activity in June when the government announced it was extending the deadline shielding business tenants from landlords enforcing rent payment obligations, this issue has dropped off the news. We thought it might be timely to provide an update as this is such a critical issue for many investors and therefore for their lenders.
- By way of a statutory instrument the government did, on 30 June 2021, extend the protection on forfeiture for no-payment of rent through to 25 March 2022. This prevents landlords from terminating business tenancies, or refusing to renew business tenancies, on the grounds of non-payment of rent. Rent for these purposes includes service charge and insurance costs.
- Restrictions on using “CRAR” (ie sending in the bailiffs to seize goods) to address non-payment of rent has not been varied so for notices served after 24 June 2021 the process is valid where the debt has been outstanding for at least 554 days. Therefore rent due as at 25 March 2020 becomes actionable at 29 September 2021.
- The ban (save in some defined circumstances) on submitting winding up petitions due to non-payment of a debt (rent) has been extended through to 30 September 2021.
Looking to the future we expect (but await the government’s announcement following the consultation process it has been running):
- Provided we don’t suffer a further enforced lockdown, landlords will on and after 25 March 2022 be able to action non-payment of rents by way of forfeiture or refusing to renew leases from that date onwards but only for that new rent default, not necessarily the accumulated rent debt. Action by use of CRAR or winding up orders can currently be taken earlier but there must be a material prospect of this being changed to March 2022.
- Back rent owed for the period March 2020-March 2022 (or possibly a different cut-off date being the date when the premises were allowed to open by law) will be ringfenced and landlord and tenants will be compelled by way of binding arbitration to agree some sort of payment plan. It is unclear whether this may include some sort of permanent relief of part of the debt owed. This will require new legislation and details are awaited.
What will this mean in practice?
The logic of having different dates for the use of CRAR (bailiffs) and winding up petitions, from the date when leases can be forfeited for non-payment of rent, makes no obvious sense to us and therefore the dates for the winding up petitions and use of CRAR may yet be further extended to March 2022. However, as things stand landlords will be in a much stronger position come September. As we expect the proposed arbitration arrangements to be unattractive for landlords, so the use of winding up petitions by landlords is likely to be the option of choice to try and force rent payments to be made. If that proves to be the case, this may be what triggers further intervention by government.
With the September date now not that distant, there is already the opportunity for landlords to be pressing hard for defaulting tenants to address their debts and noting that a failure for the tenant to cooperate now will only encourage the landlord to use the full scope of the debt recovery options available come September.
If you have any questions please contact Tony Guthrie or a member of our Value Recovery Team.