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UK COVID-19: Government extends protections for commercial tenants

After much speculation the government announced on 16 September that it will be extending protections that have been afforded to commercial tenants as a result of the COVID-19 pandemic.

What are the current protections?

Commercial tenants currently benefit from a number of COVID-19 related protections including:

  • a temporary prohibition on landlords forfeiting commercial leases as a result of a tenant’s failure to pay rent, which was due to come to an end on 30 September 2020; and
  • a requirement for 189 days’ worth of rent to be outstanding before a landlord can enforce Commercial Rent Arrears Recovery (CRAR), also due to come to an end on 30 September. Normally only seven days’ rent needs to be outstanding in order for a landlord to exercise CRAR.

What has been announced?

The Government has now announced that the forfeiture and CRAR protections will be extended until 31 December 2020 in order to “stop businesses going under and protect jobs over the coming months”.

This means that a landlord will not be able to forfeit a commercial lease for non-payment of rent until 2021 at the earliest, subject to any further extensions to this protection.

In relation to CRAR, this will mean a tenant needs to be in arrears of at least 276 days’ or 366 days’ rent, dependent upon whether CRAR is exercised before or after the December 2020 quarter’s rent falls due, before a landlord can exercise CRAR.

What does this mean for landlords?

The stated purpose of these extensions is to give businesses “some much-needed breathing space at a critical moment in the UK’s economic recovery”. However, at the same time the Government has made clear that where businesses can pay their rent, they should do so.

This will be of little comfort to commercial landlords who have seen tenants refusing to pay rent, despite the Government’s previously announced Code of Practice for commercial property relationships during the COVID-19 pandemic. The Code makes clear that both landlords and tenants “should act in good faith” and that “tenants who are able to pay their rent in full should continue to do so” – read more about this here.

The Government also makes clear that “it is crucial that both landlords and tenants have the clarity and reassurance they need to build back better from the pandemic”. Many landlords will be querying how this further blanket extension provides reassurance that they will receive rents from those tenants who can and should be paying.

What is not clear at the moment is whether the Government is also intending to extend the restrictions on winding up companies, a measure introduced (in part) to prevent landlords enforcing arrears by serving statutory demands on tenants – for more information see our previous blog. These restrictions are currently due to end on 30 September and we will have to wait to see whether there will be a similar extension.

What can landlords do?

This announcement leaves landlords in the difficult position of suspecting that many tenants will see this latest development as an invitation to not pay rent for the remainder of 2020, regardless of whether they have resumed trade and the extent to which their business has recovered. For tenants, deferring rent payments yet further may just be delaying the inevitable and leave them with an even bigger financial hangover to deal with in 2021 when restrictions are finally lifted.

With most other remedies unavailable, landlords may be left with the only option of issuing court proceedings against tenants for non-payment of rent, if they are unable or unwilling to defer payments until next year.

 

 

Our interactive tracker is a single point of reference for you on COVID-19 real estate specific matters across our global practice. It lets you view relevant guidance and changes to legislation for each country and it also allows you to compare information across different jurisdictions:

 

COVID-19 Global Real Estate Interactive Map:
Government Response Tracker

https://www.engage.hoganlovells.com/knowledgeservices/covid-19-real-estate-developments

 

For material that will help you run your business, as well as details of our business continuity planning, our COVID-19 Topic Centre houses all of our resources on the topic – from crisis leadership to supply chain.

Key real estate contacts

Daniel Norris, Global Head of Real Estate

Mathew Ditchburn, Head of Real Estate Disputes

Hannah Quarterman, Head of Real Estate Planning