It seems incredible when we look back to think that businesses were affected so dramatically by the coronavirus pandemic. As we say goodbye and good riddance to masks, social distancing, and those dreadful statistics published on the media every day, COVID seems like a bad dream – and to think we somehow managed to keep going and operate our businesses during this grim time.
March 25th, 2022, provides another watershed moment as we move out of the pandemic and into what we hope will be a better period for the business. The Commercial Rent (Coronavirus) Act 2022 (CRCA) is now law and it gives welcome relief to some landlords, and difficult issues to be faced by some tenants.
Of course, the UK Government has done a considerable amount to protect businesses from the impact of not being able to trade and therefore not being able to pay rent. Well before this Act became law it published a code for landlords and tenants to help resolve commercial rent issues and this Code now sits alongside the new Act
(see – https://www.gov.uk/government/publications/commercial-rents-code-of-practice-november-2021)
Certain business tenants will continue to enjoy protection from the immediate return of the CRAR (Commercial Rent Arrears Recovery) process. As many of you will know CRAR was introduced as the successor to the old law of Distress back in 2014. The criteria for coming within the scope of the CRCA’s protection includes |
- The affected tenancy, must be defined as a “business tenancy” under Part II of the Landlord and Tenant Act 1954
- The business and/or the business’s premises were required to close either fully or partially as a result of the Government’s mandates under the Coronavirus Regulations
- The categories of business that come within this definition included
- Indoor leisure
- Outdoor sports and leisure
- Theatres and cinemas
- Large events venues
- Hospitality and nightclubs
- Non-essential retail
- Garden centres
- Personal care
- Hairdressers
- Hotels and B&Bs
- And self-contained tourist accommodation
- The period of the rent arrears is stipulated as falling within a “relevant period” starting at or after 2pm on 21st March 2020 and ending at or before 11:55pm on 18th July 2021 (in England) or 6am on 7th August 2021 (in Wales)
- The extent of the “protected rent debt” extends to the rent itself, service charges (including repairs), maintenance, management costs, insurance premiums and interest on the amount of the debt.
Any of the types of businesses listed above may have incurred debts due to non-payment of rent and as a result will now come within the “protected rent debts” definition. The critical point here is that Protected Rent Debts cannot be subject to the CRAR or Forfeiture procedures.
Instead, The CRCA sets out a binding rent arbitration scheme, where a tenant who has a protected rent debt can take advantage of the arbitration scheme within six months of 25th March 2022. Landlords or tenants will now have until the 25th of September 2022, to apply through an arbitration process, on how the rent arrears will be managed and this end date may itself be extended if the Government consider it necessary.
For those tenants who do not fall into a protected category as listed above, then after 25th March 2022, their landlords will once again, be able to use the normal means of commercial rent recovery including CRAR, Forfeiture, Winding Up, or securing a judgment or order. Out of these options, CRAR and Forfeiture remain the quickest and most straightforward way for a commercial landlord to recoup unpaid rent.
Whichever way you look at it, it’s an unhappy outcome from what was a terrible period in our economic history. Landlords will often be losing good tenants, who, but for the pandemic, paid their rent on time. Tenants risk losing their business premises and no doubt suffer other types of downturns.
What we can say from our vantage point as enforcement agents, is that we know landlords have agonized over the decisions that they have brought us and have been keen wherever possible to act as fairly and humanely as they can. But of course, pressure built up from rent arrears does also land on the business of the landlord. And therefore, landlords, where they have the opportunity to recover possession and/or seize goods to pay their debts, will be forced to act. If that happens, what we can say at Shergroup is that we will do it in a professional and balanced way. And we are listening carefully to our landlord clients to make sure that this tricky area of law is stepped through as carefully as possible.
Many commentators have jumped on the fact that the arbitration scheme introduced by the Government for protected business rent debts, in some way limits the ability of landlords to call in arrears and to get themselves back on track.
At first glance, it might appear a commercial tenant has an advantage. However, we have seen research that suggests that the arbitration scheme set out in the CRCA will only benefit approximately one-third of businesses impacted by the pandemic. This is because the protection is only for businesses that were legally forced to close as against for example tenants of commercial offices who could have gone to work but instead followed the Government’s continual reminders to “work from home wherever possible.”
What we have seen at Shergroup is landlords being restrained, but an increasing number of inquiries as to what can and cannot be done are being received in our Solutions Hub. Only this week, we have helped a landlord start a CRAR procedure for unprotected rent in excess of £250,000. A payment plan has been offered under the CRAR procedure and this has been accepted, and we think it is the first of many that we will see.
In our view, landlords should move forward with caution and take advice on any particular commercial rent debt that they wish to recover to ensure that they do not infringe the requirements of the Act. And also, if they can show restraint, they will maintain a good relationship with the tenant who is going to be hard to replace in an uncertain property market.
Everyone is now waking up to the reality that it’s possible to run a business without a big corporate office warehouse or facility. And therefore, bringing a commercial tenancy to a close could be short-sighted without knowing how commercial property trends will pan out in the months ahead. As with so many aspects of business life, the pandemic continues to bring uncertainty in its wake.
What we can say is that TEAM Shergroup is willing and able to help each and every commercial landlord chart a course through the uncertainty as we have been doing all the way through the pandemic. We were one of the few major enforcement agencies to remain open during the pandemic as we had already swapped out to remote working many years before. From our home offices, we were able to “keep the lights on” and continue to support our landlord community.
If you find yourself as a landlord wanting to chat through your options post 25th March 2022, we offer a FREE review service for any lease or tenancy situation to get you on track. After that, our own property legal TEAM is on hand to help landlords who need access to sensible, practical advice in this new area of legislation.
We are here to support those that need enforcement services for their businesses so reach out to us at [email protected], on our phone lines at 020 3588 4240 and on any of our social channels.
