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A return to business as usual for commercial landlords and tenants?25 March 2022

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It is now just over two years since the UK entered its first emergency Covid-19 induced lockdown. That caused the government to introduce radical emergency legislative measures, preventing landlords from taking certain legal action against their tenants, in a bid to protect businesses, the economy and jobs.

Restrictions on Landlords’ Remedies

"After 25 March 2022, commercial landlords, tenants and other interested parties (such as guarantors and lenders) will be forced to return to ‘business as usual’."

The restrictions, primarily contained within the Coronavirus Act 2020 and analysed in our first article on the subject, became law in breakneck speed. Recognising their huge commercial consequences, the emergency measures were only initially intended to apply for a few months: from 26 March to 30 June 2020 (“the Relevant Period”). However, as the epidemiology of the pandemic became apparent, the laws and the Relevant Period were extended in piecemeal fashion, eventually to 25 March 2022.

As those with commercial real estate interests will be aware, well-established contractual and proprietary rights were suspended. For instance:

  1. forfeiture for unpaid rent, service charges and insurance sums was barred; and
  2. similarly, landlords were unable to commence other recovery actions, such as winding-up petitions or Commercial Rent Arrears Recovery (“CRAR”, where appointed enforcement officers can seize a tenant’s goods).

To supplement the new laws, the government published and regularly updated a code of practice to assist parties in resolving their disputes. This helped most landlords and tenants reach consensual deals to weather the storm together. However, some legal action, which was not curtailed, was still taken (such as court debt proceedings). Others adopted a ‘wait-and-see’ approach.

Business as Usual

In any case, after 25 March 2022, commercial landlords, tenants and other interested parties (such as guarantors and lenders) will be forced to return to ‘business as usual’.

"For debts that are not ringfenced, the key point for landlords is that they will shortly be able to deploy the artillery of legal options previously at their disposal as the Relevant Period will not be extended."

New legislation will protect some tenants in relation to ‘ringfenced’ debts for various  ‘lockdown’ and similar restrictive periods, to allow and encourage effective participation in a new arbitral scheme. However, as explored in our previous article , the tenant’s location and market sector will determine whether it can benefit from the scheme. The government’s latest projections indicate that a mere 2,800¹ arbitral cases are expected to arise.

For debts that are not ringfenced, the key point for landlords is that they will shortly be able to deploy the artillery of legal options previously at their disposal as the Relevant Period will not be extended. As matters stand, forfeiture and CRAR will be available in principle on 26 March 2022 and insolvency action will be available shortly afterwards (as that is governed by a different legislative framework).

WFW Analysis  

As with most legal changes (particularly those relating to property), the devil will be in the detail and bespoke advice at an early stage is advisable. This is especially important due to landlords’ protection from waiving the right to forfeit ending with the conclusion of the Relevant Period. We anticipate that this will become a hot topic during the coming months, as unwary landlords fall foul of waiver pitfalls.

Furthermore, landlords should seriously consider the commercial pros and cons of coup de grâce action. There are always important factors to consider before forfeiting a lease, which remain unchanged. For instance:

"Furthermore, landlords should seriously consider the commercial pros and cons of coup de grâce action."

  1. letting voids can quickly become expensive, particularly if there is not a viable alternative tenant waiting in the wings. Landlords may benefit from rates relief, but that will not apply indefinitely and there will also be other costs to meet, such as insurance and utilities;
  2. terminating the lease may inadvertently release guarantors and former tenants from future liability;
  3. adequate security measures to protect the empty asset will need to be implemented, to prevent vandalism, trespass and to comply with insurers’ requirements; and
  4. action may result in the tenant being forced into insolvency (such as administration or liquidation) or similar regimes (for instance, a CVA or scheme of arrangement).

Will the ending of restrictions and the new arbitral scheme for ringfenced arrears result in a return to normal? Or will disputes continue, but simply be governed by a different rule book? We suspect the latter, but only time will tell.

[1] https://hansard.parliament.uk/commons/2022-03-23/debates/D1851D62-2F21-4634-86D6-3A8C1E7F30EF/CommercialRent(Coronavirus)Bill

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