The government recently passed the Commercial Rent (Coronavirus) Act 2022, which ends government interventions to prevent tenant insolvencies during the pandemic.
This was largely in the form of the extended moratorium on tenant eviction for non-payment of rent.
The pandemic presented unique challenges for the landlord and tenant relationship, with many tenants withholding rent due to lack of business and trade. However, many were willing to engage in discussions around repayment plans and performed honourably despite the terrible difficulties experienced.
This relationship remains in sharp focus with the introduction of the new act, but how will it affect landlords and tenants?
From 24 March 2022 onwards, all tenant arrears will now be divided into those that are ‘protected’ or ‘ringfenced’, and all other debts. The protected or ringfenced debts include tenants in the retail, leisure and hospitality sectors. In England, this will be from 21 March 2020 to a later date of 18 July 2021, but it will vary.
If both parties do not reach agreement for the recovery of these debts within six months, they will be subject to an independent arbitrator’s award. During this six-month period, or until the award is made, these debts will be protected from enforcement action by landlords. Tenants whose businesses were not required to close do not receive protection from the act.
The revised commercial rents Code of Practice aligns with the act and explains how the arbitration process will work. This encourages negotiation between the parties to reach an agreement and, as with the first code issued in June 2020, there is a continuing expectation that tenants who can pay their rent should.
The arbitration route could be a costly and uncertain process and must be viewed as a last resort. We in the management team at Cluttons believe the key to a successful landlord and tenant relationship is collaboration.
Supportive landlords during the pandemic, who have proactively engaged with tenants struggling to afford their rental commitments, have managed to maintain occupancy in their properties and are now experiencing rent collection rates approaching pre-Covid levels.
Matthew Peake is head of commercial and strategic asset management at Cluttons
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