Government further extends restrictions on commercial property forfeiture, CRAR and insolvency provisions

9th December 2020 Commercial Litigation

Today the Government has further extended the restrictions on commercial property forfeiture, CRAR and insolvency provisions from 31 December 2020 to 31 March 2021.

Further to previous posts about commercial property moratoria imposed by the government Ministers Alok Sharma and Robert Jenrick have today (9 December 2020) announced a further extension of the moratoria on forfeiture for non-payment of rent, Commercial Rent Arrears Recovery and pursuing insolvency processes from the current expiry of the period of 31 December 2020 to 31 March 2021, so that the period will have lasted for 12 months.

The note claims that this will be the final extension to protections from the threat of eviction with the idea that landlords and tenants will have a further three month period to come to an arrangement in respect of unpaid rent and that where the tenant can pay any or all of their rent, they should do so. The government previously published a Code of Practice to facilitate co-operation but we have found that this has more often been ignored that complied with. Some tenants have agreed to provide evidence of their claimed poor financial position on landlords signing standard non-disclosure agreement but many others have not, knowing that the worst that can happen is a court claim for a debt which leads to judgment that then itself may be difficult to enforce whilst the commercial premises are shut. It is claimed that further guidance will be published early in 2021, which may be an amendment to the existing Code or operating alongside it but it is unclear how it will improve the position of tenants with failing businesses or landlords without rent coming in.

What is of more interest longer term is that Mr Jenrick has also announced a review of “the outdated commercial landlord and tenant legislation” (his words), to address government concerns that the current law and procedure does not, as far as the government is concerned, reflect “the current economic conditions”. Without wishing to speculate on those proposals that the government might consider, given the somewhat jaundiced view it appears to have that all landlords are bad and all tenants are good (due partly from the perceived inequality of bargaining position in the marketplace and without regard for the “small” landlord who may only have one or a few properties as part of pension planning, for example, compared to tenants who have a national presence with dozens of units), this could include any of the following:

  • Restrictions on forfeiture without the involvement of the court
  • Restrictions on CRAR without involvement of the court
  • Encouragement for landlords to take equity shares in their tenants’ businesses (recently seen with the Grosvenor Estate, for example)
  • Different models of rent payments – this could lead to turnover rents becoming the norm for retail premises – a mixture of a minimum guaranteed rent for the landlord and a “top-up” depending on the success of the tenant’s business
  • Assessing whether upwards-only rent reviews should be banned (considered but rejected by the last Labour Government) – the shortening of lease terms, not just of retail premises, but office premises too, may thus make issues concerning such rent reviews, and break clauses, far less important as leases are all granted for, say, no more than five years and thus reduce the need for rent reviews and breaks at all
  • A review of the business tenancy protection under the Landlord & Tenant Act 1954, which may diminish in importance anyway, where tenants do not consider security of tenure as important as flexibility as to lease terms and a lower amount of rent to pay without such security
  • An overhaul of the business rates system which could lead to a different basis for assessing business rates on different property types, so that, for example, an online retailer operating from warehouses with no high street presence would pay higher rates than the high street retailer – the model that provides premises with a shopfront to pay proportionally more than a pure online retailer is likely to come under threat
  • A further overhaul of the Town & Country Planning (Use Classes) system similar to the recent one, to cater for businesses offering a combined offering that currently would be restricted by only fitting within one particular Use Class
  • A review of insolvency processes, including CVA restructuring and its perceived unfairness to landlords, to make it more likely to save good businesses but allow failing businesses to be wound up for the benefit of the business’ creditors and shareholders.

It remains to be seen how much appetite the government has for any change, how quickly, and how much involvement it will actually seek from commercial property stakeholders given its lack of engagement in the imposition and extension of the moratoria to date.​​​​​​

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David Wadsworth is a Partner located in Londonin our Commercial Litigation department

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