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UK COVID-19: Government announces “final” extension to protections for commercial tenants

The government has today announced that it will be extending the current protections that have been afforded to commercial tenants as a result of the COVID-19 pandemic, for one final time.

What are the current protections?

Since the outbreak of the COVID-19 pandemic, the government has repeatedly extended temporary prohibitions on landlords taking certain enforcement action against tenants. The last extension to these prohibitions occurred in September, and you can read our blog from September here.

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

  • restrictions on the use of statutory demands and winding up petitions to encourage tenants to pay rent;
  • a temporary prohibition on landlords forfeiting commercial leases as a result of a tenant’s failure to pay rent; and
  • a requirement for arrears of at least 276 days’ or 366 days’ rent to be outstanding before Commercial Rent Arrears Recovery action (CRAR) can be exercised, dependent upon whether it is exercised before or after the December 2020 quarter’s rent falls due.

These measures were all due to come to an end on 31 December 2020.

What is the latest announcement?

The government has announced that in relation to the temporary prohibition on landlords forfeiting commercial leases, there will be a “final extension” until the end of March which “will give landlords and tenants 3 months to come to an agreement on unpaid rent“.

According to the government, “further guidance to support negotiations between landlords and tenants will be published shortly“. This will sit alongside the existing Code of Practice for commercial property relationships during the COVID-19 pandemic – read our blog for more information.

Further, the government has announced that the current restrictions on the use of statutory demands and winding up petitions, together with the restrictions on using CRAR, will also be extended until the end of March 2021 which the government says “allows businesses sufficient breathing space to pay rent owed“.

What does this mean for landlords and tenants?

As Robert Jenrick stated this morning, these measures “will help [tenants] recover from the impact of the pandemic and plan for the future”.

Business Secretary Alok Sharma also commented that “knowing that [tenants] won’t be evicted by their landlord will give thousands of business owners some breathing space and additional confidence”.

Understandably, given the recent second lockdown and the current local restriction tiers, many tenants are facing an uncertain trading outlook over the coming months. Therefore, these measures do provide a valuable further window of opportunity for struggling tenants to consider new arrangements with landlords, and to assess the benefit of Christmas trading, with a view to agreeing future arrangements with landlords that they can afford.

However, although the government has maintained its stance that “where businesses can pay any or all of their rent, they should do so”, this will be of little comfort to many commercial landlords who have seen tenants who are able to pay the rent simply refusing to do so.

Many landlords will be forgiven for wondering how this extension provides any reassurance that they will receive rents from those tenants who can and should be paying, or that tenants will now proactively engage in negotiations to ensure that they pay what they can.

Further, given the minimal impact the Code of Practice referred to above has had, it is unclear what benefit landlords or tenants will gain from the government’s promised “further guidance to support negotiations” which, it is assumed, like the Code of Practice, will be voluntary.

What else?

At the same time, the government has announced a review of “outdated commercial landlord and tenant legislation, to address concerns that the current framework does not reflect the current economic conditions”. According to the government, this review will “consider a broad range of issues including the Landlord & Tenant Act 1954 Part II, different models of rent payment, and the impact of Coronavirus on the market”.

We can only speculate, but as part of any review it may be the case that the government will dust off the Law Commission’s 2006 proposals for abolishing forfeiture. As, arguably, the most powerful remedy available to landlords, any changes to a landlord’s right to forfeit will be not just hugely significant but also extremely controversial.

What can landlords do?

Today’s news leaves landlords in the difficult position of knowing that many tenants who are not struggling will see this as a further extension of their licence not to pay rent. However, landlords and tenants should bear in mind that if a tenant who can pay is simply refusing to pay rent, a landlord can still issue court proceedings against a tenant for non-payment of rent.