Unwelcome News for Commercial Landlords

Government announces extension to moratorium on forfeiture of commercial leases. 

On 16 June 2021 the Government announced that the moratorium on forfeiture of commercial leases, which was due to end on 30 June 2021, will be extended to 25 March 2022. This means that, a right of re-entry or forfeiture for non-payment of rent may not be enforced, by action or otherwise, until after 25 March 2022.

The idea behind the extension is to support businesses that have had to remain closed during the pandemic and as a result are in rent arrears. Note that commercial tenants who can pay rent must do so.  Rent debt accumulated before March 2020 and after the date when relevant sector restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protection measures are lifted. 

In the meantime, the Government hopes that landlords and tenants can work together to reach an agreement as to rent owed. If landlord and tenants are unable to reach an agreement then a binding arbitration process may be initiated so that both parties can come to a formal agreement. Arbitration is a process whereby an impartial arbitrator will make a decision following a consideration of the evidence/documents relevant to the dispute, which will be set out in a legally binding agreement that both parties must adhere to.

For tenants, the Government’s announcement will be happily received. On the other hand, for landlords it will be unwelcome news.

Although landlords will not be able to forfeit a lease for non-payment of rent, they can still forfeit a lease for non-monetary breaches of the same provided that the right to forfeit has not been waived by the landlord (and subject always to a tenant’s right to claim relief from forfeiture.) There are other options available to recover unpaid rent such as to issue court proceedings for rent arrears as a debt claim. This may push a tenant to settle arrears. That said, if a tenant is genuine and unable to pay rent then it is likely that court proceedings would not help solve the dispute given that a tenant in these circumstances would be unlikely to comply with a court judgment to pay the sum owed, plus interest and legal costs. Attempting to enforce a court judgment will also incur further costs. It is also worth noting that statutory demands and winding up petitions will also remain restricted for a further three months to protect companies from creditor enforcement action where their debts relate to the COVID-19 pandemic.

June 2021

For advice on what options are available, please contact Scott Cable on 0191 466 1141 or scott.cable@sjs-law.co.uk