Rebooting the Landlord and Tenant Relationship
From 25 March 2022, commercial landlords and tenants have been forced to return to ‘business as usual’, as the Government ended Covid interventions. So how will this affect the already fractious relationship between Landlord and Tenant?
The last 2 years have been challenging for the landlord and tenant relationship, when both were presented with a unique set of challenges. Survival was key and both had very few options. In response, the Government introduced a moratorium on available Landlord remedies to recover rent (and certain other) arrears from commercial tenants. This was welcome news to the high street but inevitably pushed the cash flow burden on to landlords, this hasn’t been helped by some high profile tenants such as Virgin Active making some bold moves.
Business as Usual
The previous measures have now been replaced by new restrictions contained in the Commercial Rent (Coronavirus) Act 2022, which came into force on 24 March 2022. The Act allows landlords to again use all available remedies for non-payment of rent that were available prior to the Covid moratorium, except in circumstances where the rent arrears accrued during the Protected Period, which will be temporarily ring-fenced (Broadly speaking, the Protected Period covers the period where rent fell due between 21 March 2020 – 18 July 2021).
Protected Period arrears includes rent, service charge, VAT and insurance rent. The Act provides that where Protected Rent debts are disputed, the dispute can be determined by a binding arbitration scheme. Either the landlord or the tenant may refer the dispute to the arbitration scheme and the arbitrators have a broad discretion to determine the dispute.
It is not intended for the arbitration scheme to be a catch-all solution for Protected Rent, and it has been made clear that tenants should pay where they have the means to, or at least exhaust all avenues directly with their landlord before referral to the scheme. That being said, the moratorium on landlord remedies will continue until 25 September 2022 for Protected Rent, unless an arbitration has been concluded, so the options remain limited for landlords until Q4 2022 in respect of Protected Rent.
This now brings the Landlord and Tenant relationship back into the spotlight.
We remain doubtful that the new arbitration and ring fencing regime will make any difference as many Landlords and Tenants have already entered into discussions or reached agreements. There is also common agreement that even outside of the new regime, the Landlord and Tenant Act is long overdue an overhaul so even prior to the last 2 years there were struggles.
The key enduring advice in light of the new regime is that Landlords will have to remain flexible and agile and avoid a shot-gun approach as:
- Vacant letting voids are costly
- Terminating leases may release guarantors and tenants from liability
- Action may result in the tenant entering a CVA, restructuring plan or just administration where landlords have few options.
Moorfields’ specialist Property Solutions Team has extensive experience of working with landlords and their lenders to provide advice and solutions for restructuring and exiting their commercial property portfolios. We also work with commercial tenants to assist with restructuring their debt or to advise on formal insolvency options.
Contact Steve Sartin for more information on 0207 186 1144