Many business owners will have been breathing a sigh of relief when the Government announced the restrictions on landlords taking enforcement action will remain in place until 25 March 2022. However, the devil is as ever in the detail, which suggests that the protection may not be as all-encompassing as it may at first seem.
25 March 2022 – the new end date
The Government has confirmed that the ongoing protection for commercial tenants will be extended until 25 March 2022. Given that social distancing measures were not lifted on 21 June 2021, but have instead been extended until at least 19 July 2021, this has come as welcome news for hospitality and leisure businesses that remain closed.
Landlords have faced some of the biggest challenges over the last 15 months, as they have been unable to enforce their rights for non-payment due to the pandemic. The extension suggests landlords will have to forego rent for two years by the time the protection continues.
A fair balance?
The new legislation is set to ringfence any arrears that have accrued whilst the commercial tenant has been forced to remain closed due to the pandemic. However, the Government is quite clear that once restrictions lift and a business can reopen, then it should start to meet its ongoing rent obligations. This is to ensure that going forward, as the economy opens, the next steps are both fair to commercial tenants as well as the landlords.
Dealing with the ring-fenced arrears
Landlords will be expected to share some of the financial impact with their tenants. This suggests the Government is anticipating that some arrears will need to be compromised and that landlords will need to accept they will either need to wait to be repaid or they will need to accept a reduced settlement. Businesses should consider what they can afford and that amount should be reasonable whilst also being affordable. If an agreement cannot be achieved, then the legislation will ensure an arbitration process will follow, with a legally binding agreement being the outcome.
This is good news for companies that would otherwise be facing a formal insolvency procedure to deal with the rent arrears.
No eviction until 25 March 2022
Landlords will not be able to evict tenants until 25 March 2022, with the idea that the next few months should be spent formulating a plan that is agreeable to both the tenant and the landlord. It is also worth noting landlords (as well as other creditors) will not be able to issue statutory demands or winding up petitions until 30 September 2021 at the earliest. In addition, Commercial Rent Arrears Recovery action will only be able to be instigated if there are more than 554 days outstanding.
Affordability will be the key ingredient
Making sure any repayment plan is affordable over the medium to longer-term will be important if your business is to move forward and recover completely from the after-effects of the pandemic. When agreeing on any repayment plan, you should ensure that you forecast the cashflow in your business, taking into account the proposed repayments, as well as any other deferred payments.
If you need any assistance with your rent arrears, please contact our Restructuring & Insolvency team, who will be able to help you.
