The ban on commercial evictions has been extended to March 2022, it was recently announced.
Under the ban, which was originally supposed to end on 30 June 2021, landlords will be unable to use the full range of enforcement options they would usually have to evict tenants in rent arrears and recover rent, including forfeiture and the Commercial Rent Arrears Recovery (CRAR) procedure.
The ban is intended to support businesses as we emerge from the Covid-19 pandemic, particularly hospitality businesses which continue to struggle after being forced to close for most of 2020 and much of 2021.
Beyond the eviction ban, landlords may also face restrictions on recovering rent arrears which accrued during periods of forced business closure.
The government is planning to write a new binding arbitration process into law to help landlords and tenants agree on how to settle rent arrears disputes.
Landlords will also be unable to pursue insolvency proceedings to help them recover rent as restrictions on corporate statutory demands and winding up petitions have also been extended until the end of September 2021.
As a landlord, the eviction ban extension may have come as a blow, particularly if you have played a vital role in supporting your tenants through the Covid-19 crisis by being flexible with rent. Here, we outline how the eviction ban works, what we know about the proposed arbitration process and what options landlords have.
How the extended eviction ban works
When a commercial tenant stops paying or falls behind on rent, the landlord typically has a number of options available to them, including:
- Forfeiture – if the tenant breaches their lease and the lease contains a forfeiture clause, a landlord may terminate (forfeit) the commercial tenancy and retake possession of the property (which in most cases involves issuing possession proceedings at court).
- Commercial Rent Arrears Recovery (CRAR) – this is a statutory procedure allowing a commercial landlord to take control of their tenant’s goods to sell and recover the outstanding debt.
Currently, landlords cannot use forfeiture to recover possession of a commercial property, either peaceably or via possession proceedings. The ban will be in place until 25 March 2022 (unless further extended).
There are also restrictions on using the CRAR procedure until 25 March 2022. The government has extended the number of days of outstanding rent there must be before landlords can use the procedure to 554 days (up from 457 days).
Where the lease contains renewal clauses, the landlord may not use failure to pay rent as a reason not to renew the lease.
Commercial rent arrears arbitration process
As well as the eviction ban, the government has stated that any rent arrears accrued due to the Covid-19 pandemic will be ringfenced. It intends to introduce new legislation to help commercial landlords and tenants negotiate an agreement regarding rent arrears via a legally binding arbitration process.
The government has not yet announced exactly how the arbitration process will work. However, it appears that landlords and tenants will be encouraged to ‘share the burden’ of the Covid-19 pandemic. This could mean agreeing reduced payment plans or even waiving rent arrears. Tenants will likely be encouraged to prioritise their future rent payments while being protected from legal action from their landlord in respect of arrears accrued due to Covid-19.
What options do landlords have?
Landlords have been pivotal in supporting businesses through the pandemic, and subsequently safeguarding the economy. By exercising flexibility and understanding through a difficult time, many businesses will be able to come out the other end stronger than ever.
However, for many landlords a further ban on enforcement options is not commercially viable. In some cases, the ban may simply be delaying the inevitable and preventing landlords from retaking possession of properties from unviable businesses. In other cases, a tenant may be able to pay their rent but are choosing not to.
In these situations, what options do landlords have to recover unpaid rent?
The government has yet to introduce its new binding arbitration process, so commercial landlords may still pursue debt claims in the county courts to obtain judgments against tenants in relation to rent arrears and costs. However, landlords should consider whether taking court action (which can be lengthy and expensive) is beneficial, particularly in light of the enforcement actions available.
Although restrictions on corporate insolvency have been extended, landlords may use a county court judgment as a basis for seeking a winding up petition, but only where Covid-19 is not responsible for the business’s financial difficulties, or where the company would be insolvent regardless of the pandemic.
If the tenant is in breach of other covenants within their lease, landlords can still take legal action in respect of these as the coronavirus eviction ban only extends to rent arrears.
Other breaches of covenant might include carrying out unauthorised works on the property or letting the property fall into disrepair. In such cases, the landlord may take action to forfeit the lease.
Whichever course of action taken, it is essential to seek independent legal advice first to check your rights and options.
Expert landlord & tenant solicitors in London
Housing and Property Law Partnership (HPLP) is a boutique property law firm specialising in a wide range of commercial landlord & tenant matters, including forfeiture, rent arrears and possession claims.
Contact us to discuss your situation and find out how we can assist you.