The ban on commercial evictions introduced to prevent mass repossessions and insolvencies due to Covid-19 has been extended by nine months to March 2022.
Under the ban, commercial landlords face restrictions in relation to a wide range of enforcement options, including forfeiture and the Commercial Rent Arrears Recovery (CRAR) procedure.
The ban is mainly to support hospitality businesses which have been hit hard by closures due to the pandemic.
Rent arrears which have arisen during periods of closure the pandemic will be ‘ringfenced’ and landlords will be expected to share the financial burden. The government states that landlords and tenants should closely cooperate to come to an agreement about rent, such as agreeing a longer-term repayment plan or waiving some of the money owed.
The government has also announced a new legally binding arbitration process for landlords and tenants who cannot agree payment plans or rent concessions.
Communities Secretary Robert Jenrick states:
“This special scheme reflects the unprecedented nature of the pandemic and responds to the unique challenges faced by some businesses. It strikes the right balance between protecting landlords while also helping businesses most in need, so they are able to reopen when it is safe to do so.”
The impact of the Covid-19 eviction ban on commercial landlords
Despite the government’s statement that sharing the burden of business closures between landlords and tenants is fair, this news will come as a blow to many landlords.
The ban on commercial evictions has now been in place since March 2020 when the country initially went into lockdown. Since then, the ban has been extended four times, with the last extension originally due to end on 30 June 2021. The very latest extension is nine months, considerably longer than any extension that has come before.
In many cases, this extension will allow landlords and tenants to come to amicable agreements, giving tenants space to pay what they can and negotiate a payment plan for the rest. The new arbitration process may also provide a means for landlords to recover some rent from tenants that can afford to pay but have been refusing to.
However, some argue that landlords have effectively donated millions of pounds to tenants over the past 15 months, and they are justifiably frustrated at such a long extension.
There will also certainly be cases where businesses are in severe financial difficulty and potentially beyond saving. In such cases, the eviction ban is delaying the inevitable and preventing the landlord from cutting their losses and moving on.
Landlords will also find it extremely difficult to take other types of legal action due to the moratorium on some corporate insolvency procedures. The ban on statutory demands and winding up petitions where the business’s financial difficulty has been caused by the coronavirus pandemic was also recently extended to 30 September 2021.
The impact of the Covid-19 eviction ban on commercial tenants
The end of the previous ban on evictions was described as a ‘grim shadow’ for businesses, particularly hospitality businesses such as nightclubs which have been closed more often than not over the past year.
The eviction ban extension will surely provide vital breathing room for businesses that would be viable and even thriving if it were not for the Covid-19 pandemic.
The hope is that the extension, coupled with the new arbitration process, will ease the commercial property sector back to normality, while still maintaining businesses’ rental obligations under their commercial leases.
How will the new arbitration process work?
Here is what we know so far:
- Any rent arrears that arose during periods where the business had to stay closed during the pandemic will be ‘ring-fenced’.
- The government will create a law setting out the provisions of the arbitration process.
- The provisions will encourage landlords and tenants to agree payment plans, but landlords will be expected to compromise and ‘share the financial impact with tenants’. This could mean waiving rent or agreeing a longer-term payment plan.
- Arbitration should be used where the landlord and tenant cannot come to an agreement. The arbitrator will settle debts which arose when the business was closed ‘fairly and with finality’.
- The result of arbitration will be legally binding on both parties.
Do you need advice about commercial rent arrears or another problem with landlord or tenant?
The eviction ban extension and the arbitration scheme will undoubtedly be controversial, and while it could be a lifeline to some, it will surely cause hardship for others.
During such uncertainty, it is worth speaking to a legal professional about your options. Our commercial property solicitors can review your situation and provide strategic, practical advice about the best way to move forwards.