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A Commercial View - landlord/tenant relationships are still vital

The government recently passed into law the much-anticipated Commercial Rent (Coronavirus) Act 2022. This effectively ends government interventions to prevent commercial tenant insolvencies during the pandemic, largely in the form of the extended moratorium on tenant evictions for non-payment of rent.

Enforced lockdowns during the pandemic presented unique challenges for the landlord and tenant relationship with many tenants withholding rent because trade or business fell away. However, an equal number were willing to engage in discussions around repayment plans and performed honourably despite the terrible difficulties experienced. The landlords who did well are those who got to know their tenants’ businesses and challenges, and who agreed a recovery plan that worked for both sides.

The relationship between tenant and landlord remains in sharp focus with the introduction of the new Act - but how will it actually affect landlords and tenants?

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Since late March all tenant arrears are now be divided into two pots – those that are ‘protected’ or ‘ringfenced’, and all other debts. The protected or ringfenced debts are those that tenants in the retail, leisure and hospitality sectors accumulated whilst their business were forced to close during the pandemic.

In England, this is for a period from March 21 2020 to a latest date of July 18 2021 but will vary from business to business depending on the sector in which it operates.

If landlords and tenants do not reach agreement for the recovery of these debts within six months of March 24 2022, then 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 any enforcement action by landlords.

Tenants in other sectors, and whose businesses were not required to close, do not receive protection from the Act, and will be subject to the normal legal remedies for the recovery of arrears (ie,. the moratorium on eviction for tenants with unprotected debts has now been lifted).

The updated commercial rents Code of Practice (November 2021) 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 do so in full.

We believe that the arbitration route could be a costly and uncertain process and should be viewed as a last resort. As a result, we would advise landlords and tenants to agree a repayment strategy ahead of this. For unprotected debts, tenants should be aware that landlords can once again use enforcement actions to recover these arrears so they should be cleared without delay.

We in the management team at Cluttons believe that the key to a successful landlord and tenant relationship is collaboration and transparency. One must only review the strategies of many supportive landlords during the pandemic to see which ones have proactively engaged with tenants’ struggling to afford their rental commitments and which, as a result, have maintained 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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