Appendix 2: Business Tenancies (Protection from Forfeiture: Relevant Period) (Coronavirus) (England) (No. 2) Regulations 2021 (SI 2021/732)
Additional information from Ministry of Housing, Communities, and Local Government
Q1: Given that the moratorium has been in place since March 2020, how will businesses, especially smaller ones and businesses in the hospitality and catering sector, be able to repay rent arrears that have accumulated over more than a year? Even once restrictions are lifted, it may take time for business to recover to pre-pandemic levels, so they may not be generating enough income to pay the accumulated arrears.
A1: The Government has already taken action to protect businesses from eviction and provide financial support for those affected by trading restrictions for their sector, including extending the Coronavirus Job Retention Scheme until September and new ‘Restart Grants’ of up to £18,000 for highly impacted businesses.
However, many businesses have struggled to pay rent to landlords during the pandemic and have built up debt, particularly in the hospitality sector. That is why the Government introduced a moratorium on the eviction of commercial tenants until the end of June 2021. We welcome negotiations between commercial landlords and their tenants to resolve any outstanding debts. In order to encourage the resolution of these debts, the Government will legislate to ringfence rent debt accrued during the pandemic by businesses affected by closures until restrictions for their sector are removed, and set out a process of binding arbitration to be undertaken between landlords and tenants in the event where agreement cannot be reached. Until this legislation is in place, the existing moratorium will continue until 25 March 2022.
We expect commercial landlords and tenants to negotiate in good faith and agree to terms to defer or waive entirely a proportion of accrued rent arrears, giving tenants breathing space to agree to new terms whilst businesses continue to recover. But, in the event that landlords and tenants are unable to come to a negotiated settlement, both parties will be required to undertake binding arbitration. Ahead of the system of binding arbitration being in place, we will publish the principles which we will seek to put into legislation in an updated and strengthened Code of Practice,33 to allow landlords and tenants time to negotiate on that basis and provide support for smaller businesses and those who have been impacted by sector-based closures.
The extension of the current moratorium goes beyond the likely ending of restrictions for certain sectors, instead forming part of a long-term solution to resolving rent arrears for both landlords and tenants. A nine-month extension until 25 March 2022 protects businesses from eviction and insolvency at a time when trading is restricted, providing time for businesses to recover whilst primary legislation can be brought forward.
Q2: The British Property Federation has highlighted the problem of “well-capitalised businesses who can afford to pay rent, but are refusing to do so” and the impact this will have on future investment (https://bpf.org.uk/media/press-releases/the-government-is-putting-at-risk-essential-investment-by-commercial-property-owners-and-the-health-of-our-town-centres/). Given that the moratorium applies to all tenants, is the Government doing anything to ensure that those businesses that are trading and can afford to pay rent will do so?
A2: It is the Government’s expectation that landlords should share the financial burden of the pandemic with tenants where they are able to do so, but also that tenants who can pay, should pay. The Government is clear that tenants should begin to pay rent in accordance with the terms of their lease, or as otherwise agreed with their landlord as soon as restrictions for their sector are removed. As such, this will mean a return to normal contractual arrangements for those tenants able to pay rent debts in full and not affected by closures.
The announcement of an extension to the moratorium and intent to bring forward primary legislation to create a system of binding arbitration triggers the start of a return to ‘business as usual’, by balancing protecting landlords and supporting those businesses most in need. It will ensure that many viable businesses can continue to operate, and that debts accrued as a result of the pandemic are quickly resolved to mutual benefit.
29 June 2021
33 Code of practice for the commercial property sector, MHCLG, June 2020.