COVID-19 Q&A | Sintons | Further extension on protections for Tenants of Commercial Property
We previously published an article on the impact of The Coronavirus Act 2020 (the “Act”) on landlords of UK Commercial Property. One of the key aspects of the Act was the prevention of landlord’s re-entering premises or forfeiting leases due to non-payment of rent. Initially the Act stated that these provisions were to only last for a period up until 30 June this year, but this was subsequently extended, and the extended period was due to come to an end on 30 September.
In addition, landlords were only able to enforce Commercial Rent Arrears Recovery (“CRAR”) if there were 189 days’ worth of rent outstanding, meaning that CRAR was only available for arrears that had accrued before the Act came into force.
What has been announced?
On 16 September, “to stop businesses going under and protect jobs over the coming months” the Government announced that it will further extend the forfeiture and CRAR protections that have been afforded to tenants of commercial property. The extended deadline is now 31 December 2020.
In relation to forfeiture this means that a landlord will not be able to forfeit a commercial lease for non-payment of rent until 2021 at the earliest with there still being a potential for this date to be further extended in the future.
In relation to CRAR, for a landlord to exercise CRAR there will have to be at least 276 days’ or 366 days’ worth of arrears (depending on when the final quarter’s rent falls due). This extension means that again for a landlord to currently exercise CRAR the arrears must have begun before the Act came into force.
What next for landlords?
Whilst the extensions are intended to provide commercial tenants with breathing space and relief during a troubling time the further extensions will no doubt be cause for concerns for landlords who have seen tenants refusing to pay rent throughout this period. In certain cases this may even be contrary to the Government’s Code of Practice for commercial property during the pandemic which states that landlords and tenants “should act in good faith” and that, “tenants who are able to pay their rent in full should continue to do so”. Unfortunately, for landlords, whilst the extensions to forfeiture and CRAR are compulsory the Code of Practice is voluntary.
Some landlords may wish to take this opportunity to use arrears of rent that have accrued during this period as an opportunity to commence negotiation of new arrangements with their tenants such as allowing rent free periods in return for lease renewals, payments of block rent in advance, reversionary leases or removal of tenant break options.
Finally, it is still worth noting that the additional extensions do not remove the landlord’s right to rent or other payments under the lease and therefore, whilst the landlord cannot re-enter or forfeit, interest will continue to accrue on rent that has not been paid and at the end of the extension the amount of arrears accrued will be an amount due to the landlord.