The end of restrictions on Commercial Rent Arrears

For many businesses the financial commitment of renting commercial property is significant, and can include a premium to purchase the lease, rent, and service charges.

In 2020, the UK Government introduced measures to help those businesses most affected by Covid-19 from recovery action in relation to unpaid rent.  Section 82 of the Coronavirus Act 2020 (“CA 2020”) prevents the landlord of commercial property from evicting a tenant for the non-payment of rent.

In practical terms this meant that commercial tenants have been protected from eviction (or other legal action).  However, this protection expires on 25 March 2022 and as the liability for unpaid rent was not removed by Section 82, commercial tenants with arrears will need to consider their position.

In November 2021, Kwasi Kwarteng, the Secretary of State for Business, Energy and Industrial Strategy announced new measures which would “provide commercial landlords and tenants with the clarity and certainty they need to plan ahead and recover from the pandemic.” 

So what is the current position?

The Commercial Rents Code of Practice

Negotiations between landlords and tenants are now underpinned by a new Code of Practice, providing all parties with a clear process for settling outstanding debts.

The code applies to all commercial leases held by businesses which built up rent arrears, as a result of premises having been closed or having had business restricted during the COVID-19 pandemic.

It sets out that, in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord waives some or all rent arrears where they are able to do so.  The code can be viewed in full, here.

The legal position remains that tenants are liable for obligations under the lease, unless the terms are renegotiated by agreement, or some relief is given as a result of new legislation set out below.

The Commercial Rent (Coronavirus) Bill

New legislation introduced in the Commercial Rent (Coronavirus) Bill will establish a legally-binding arbitration process for commercial landlords and tenants who have not already reached an agreement, by following the principles in the Code of Practice. The bill is nearing the final stages and is expected to come into force with effect from 25 March 2022.

The legislation will apply to businesses which were instructed to close, in full or in part, from March 2020 until the date restrictions ended for their particular sector.  Debts accrued at any other time will not be within the scope of these provisions.

Landlords and tenants are encouraged to reach their own agreement where possible, instead of resorting to the new arbitration process.  The window to apply for arbitration will be six months from the date legislation comes into force, with a maximum time frame to repay of 24 months.

What happens to commercial rent arrears outside of this scope?

You should consider the terms of your commercial lease.  If the lease contains a ‘break clause’, whereby either party can end the lease early, this could provide an opportunity to renegotiate the original terms. A notice period will apply in these circumstances but if you are considering scaling back, or closing down your business altogether, a break clause could be beneficial.

Importantly, if your company is experiencing financial difficulty as a consequence of Covid-19 (or otherwise), it is important to seek advice from a Licenced Insolvency Practitioner as soon as possible.

Help from Licenced Insolvency Practitioners

Keywood Group is a firm of Licenced Insolvency Practitioners with offices in Birmingham and London, although we cover the whole of England and Wales.

Our team has extensive experience dealing with businesses and our Insolvency Practitioner is fully licenced and regulated by The Insolvency Practitioners Association.

Whether your company is struggling with commercial rent arrears or other liabilities we will help review the position and put together a plan of action.  If you want further information, please contact us for a no obligation chat.