Landlords face further restrictions

With the UK Government extending the moratorium on commercial leases until March of next year, property lawyer Fiona Boswell investigates the impact it will have on landlords.

Landlords face further restrictions

With the UK Government extending the moratorium on commercial leases until March of next year, property lawyer Fiona Boswell investigates the impact it will have on landlords.

It’s been a torrid time for most people, these past 18 or so months. Many have lost loved ones during the pandemic while others have suffered their own health issues because of this most debilitating of viruses. It’s also been pretty rough for businesses, with many struggling to make ends meet. Some have even closed for good.

Those unable to trade, but still needing to pay fixed costs, have endured a terrible time. And then there are the landlords, who have almost become the forgotten victims of the Covid-19 pandemic. In this month’s column for Elite Franchise, I shall be analysing the latest decision by the UK Government, to extend the moratorium on commercial leases until March 2022. If you are a franchisor of a premises-based business, then this decision will certainly affect you. In fact, the latest update from the Government will impact on all commercial landlords.

Back in March 2020, the UK government announced that commercial landlords were precluded from forfeiting commercial leases, and evicting their tenants for non-payment of rent.  This decision was made to protect the public and the wider economy. This measure was originally in place until June 30th, 2020, and was subsequently extended until December 31st of last year. Fast forward to last month and, on June 16th, the Government updated its position by extending the moratorium until March 25th, 2022.

So what does this mean for commercial landlords?

While the moratorium is law, commercial landlords will not be able to evict a tenant for non-payment of rent. This applies to all businesses. Landlords can still recover unpaid rent using CRAR (Commercial Rent Arrears Recovery). This is a statutory procedure that allows landlords of commercial premises to recover rent arrears by taking control of a tenant’s goods and selling them.

Until recently, landlords were able to take the CRAR route, by giving seven days’ notice of enforcement. However, this period has been extended significantly, with landlords unable to apply CRAR until 554 days of unpaid rent has accrued. This restriction is in place until March 25th next year.

When the moratorium was first introduced last year, the Government encouraged landlords and tenants to work together, and to try to arrive at an agreement on the payment of rent, and money owed. This continues to be encouraged, with the Government hoping that landlords will waiver a certain amount of debt or agree to implement a flexible repayment plan.

While evictions are prohibited until next year, statutory demands and winding up petitions, which relate to debt amassed during the pandemic, are only restricted until the end of September. This raises the possibility that businesses will soon be forced into financial difficulties.

Another option to recover commercial rent arrears is to issue a claim via the County Court. You can then transfer this judgment to the High Court for enforcement. But take note, this particular legislation does not apply to a short lease. Landlords who have tenants with a six-month lease, or shorter, can still forfeit their tenant’s lease.

In summary

The moratorium on commercial leases was originally designed to protect jobs, by allowing businesses to continue trading despite struggling to pay rent. In order to protect landlords, the Government has made it clear that businesses which have the capability to pay their rent must do so. They should start paying their rent as soon as lockdown restrictions are lifted.

Although these changes to the law have been announced, they are not yet in force but we anticipate that this will happen before the end of the month. Rules continue to change at short notice and it is uncertain whether further extensions will be imposed at a later date. Landlords can minimise risk by working with tenants and having continued dialogue with them. They should also seek legal advice as soon as possible, so they fully understand their position.

There is a risk that this recent extension to the legislation will result in some tenants exploiting the moratorium, by using it as an excuse to not pay rent. We recommend that any landlord, or franchisors concerned about their business network, should seek legal advice at the earliest opportunity in order to mitigate exposure to risk.

A review of commercial landlord and tenant legislation is due to be launched later this year. This will consider a broad range of issues that include the Landlord & Tenant Act of 1954, as well as investigate the different types of rent payments that exist, along with the impact of Coronavirus on the market. No doubt, this will bring about even more changes in the future.

Contact us

Should you require specialist legal advice and guidance, with regards to the extension to the moratorium, we will be happy to assist. This article is provided for information purposes only and does not constitute legal advice.

ABOUT THE AUTHOR
Fiona Boswell
Fiona Boswell
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