Outlined in this announcement was that tenants who have not been affected by closures, and who have the means to pay, should do so and that commercial tenants should begin to pay rent as per their lease from the point of restrictions being lifted.
Simon Waterfield, partner and specialist property dispute solicitor at Nelsons, discusses what this means for landlords and how they can tackle the issue of tenants who haven't paid rent.
An emergency response
Before Covid-19 hit, landlords who were involved in a dispute with tenants who, for example, were in rent arrears, were entitled to forfeit the tenant’s lease through one of two options – court action or by changing the locks.
However, during the pandemic, the government recognised that a lot of organisations were struggling to pay their rent due to enforced closures or significant financial stress on their business.
Therefore, in addition to providing them with furlough support through the Coronavirus Job Retention Scheme (CJRS), the government put the moratorium in place as a support mechanism, which meant that a landlord wouldn’t be entitled to forfeit the lease or collect rent arrears during the designated time period. Due to coming to an end on 25 March 2022, landlords will then be able to go back to pre-Covid ways of managing their commercial properties. According to the Financial Times, it is estimated that commercial tenants in the UK paid just a fifth of the rent they owed from January to March this year.
Despite the moratorium, there are still a few circumstances where a landlord can still resort to court proceedings and recover the rent if a tenant has not paid. For example, the landlord could still forfeit the lease if there’s a breach of one of the other terms of the lease. A landlord can still pursue a claim against a guarantor and in some circumstances a former tenant.
Post-pandemic
The government’s announcement on 4 August did not reveal a structure on how the process post-25 March will work. However, the court has said that any dispute or rent arrears will need to be resolved between the landlord and the tenant, and has issued a code of practice to assist with this process.
If an agreement can’t be reached, then a binding arbitration process will need to be entered. This involves both parties making their submissions to an arbitrator, who then makes a decision that is binding for both parties. Again, the Government hasn’t set out a clear plan for this.
Looking ahead
It is still uncertain exactly what will unfold when the emergency moratorium comes to an end. However, it’s highly likely that the fallout will continue for many months following its conclusion.
It’s inevitable that there will be a significant backlog of disputes, with many landlords and tenants having a stand-off, which might resort in the government having to draft in temporary arbitrators to help manage the caseload and balance the outcome between what both the tenant and the landlord wants.
It is essential that both Landlords and Tenants start planning now and start communicating with each other. Nelson has been dealing with these types of discussions throughout the pandemic.
