11 March 2021

Forfeiture Moratorium on UK Commercial Leases and restrictions on CRAR extended to 30 June 2021

The government has announced that the measures which were put in place last year to assist commercial tenants during the Covid-19 pandemic will be extended, once again, to 30 June 2021.

The effect of the latest announcement is as follows:

  • Landlords will not be able to forfeit commercial leases on the basis of rent arrears until after 30 June 2021. Forfeiture for other breaches is still permitted.
  • Commercial Rent Arrears Recovery (CRAR) may only be exercised:
    • Between 25 March 2021 and 23 June 2021, if at least 457 days' rent (i.e. five quarter's rent) is outstanding when the notice is given and when the goods are taken control of for the first time.
    • On or after 23 June 2021, if at least 554 days rent (i.e. six quarter's rent) is outstanding when the notice is given and when the goods are taken control of for the first time.
  • The government continues to encourage landlords and tenants to agree their own arrangements for paying or writing off debts, following the guidance set out in the Code of Practice governing commercial property relationships ("the Code"), which was introduced in June 2020. The Code seeks to promote open and constructive discussions between the parties where the tenant cannot afford to pay sums due. If arrangements are agreed, landlords should take care to ensure third parties like guarantors are not inadvertently released from liability.
  • Landlords remain able to pursue debt claims through the Courts in respect of unpaid rent and other sums. This is likely to remain the only option available to a landlord wishing to recover payment from tenants who can pay, but refuse to do so. A Judgment secures interest at 8% per annum on the sum due and can be enforced in various ways.
  • Landlords can still take action against guarantors.

There has been no comment on whether the restriction on using insolvency proceedings to recover sums due will be extended, but this seems highly likely to follow suit.

The government had previously said that the restrictions would end on 31 March 2021, and so the announcement is likely to come as a disappointment to many landlords. They do now appear to be looking to the future, however, and the press release gives some insight to the approach that may be taken when the restrictions are eventually lifted.

The government has confirmed that it intends to track the extent to which landlords and tenants are reaching their own arrangements under the Code. They indicate that they may take additional steps to protect business tenants if large numbers of landlords and tenants do not reach their own agreements, and there remains a significant risk to jobs. Both a phased withdrawal of current protections, and legislation to protect those businesses most at risk, are being considered.

Charlotte is a Senior Associate, and Ben and Jonathan are Partners in our Property Litigation team.

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