- Government proposes to introduce moratorium on landlord enforcement for unpaid rent
Government proposes to introduce moratorium on landlord enforcement for unpaid rent
Government proposes to introduce moratorium on landlord enforcement for unpaid rent24th April 2020 - Published by Kuits commercial property team
Yesterday, the Government issued a press release entitled, “New measures to Protect UK high street from aggressive rent collection and closure”. The statement suggests that, in addition to Landlords being restrained from forfeiting commercial leases for non-payment of rent (s82 of the Coronavirus Act), the Government now proposes to prevent commercial landlords from using Commercial Rent Arrears Recovery for a period of 90 days, and also from commencing proceedings.
The above proposal is to be incorporated into the new Corporate Insolvency and Governance Bill, a copy of which is presently unavailable for review by the public.
Our Commercial Property team’s experience mirrors the press release, insofar as the majority of landlord and tenant clients are working well together to reach a mutual agreements on liabilities. However, where there has not been a collaborative approach, this has not always been down to the conduct of the landlord.
The release appears to focus on implementing measures to restrain ‘aggressive landlords’ and only briefly on encouraging potentially opportunistic tenants to pay their liabilities if they can afford to. There appears to be no mechanism in place to compel tenants to engage and no advice on what Landlords are to do if their tenant will not engage to reach a mutually acceptable arrangement.
Interestingly, the restraint on landlord action appears to only be where a company cannot pay their bills due to coronavirus. This is subjective in itself. Is rent payable on the March 2020 quarter date enforceable, because the non-payment cannot be due to coronavirus, as the Government’s restrictions were only put in place at the end of March 2020? This scenario is very much open to debate and creates a potential for landlords to pursue these sums in the usual manner.
Whilst the Government’s focus appears to be on ‘protecting high street businesses’, the impact will be on all commercial leases. As a consequence, it does not deal with three fundamental problems caused to landlords as a result of the proposal:
- Servicing the landlord’s lender – there is no moratorium on lender’s enforcing security by way of, for example, the appointment of LPA receivers or administrators, or from calling in personal and cross company guarantees;
- Value of the property – it is yet unclear as to the impact of coronavirus on the value of commercial property. This may impact on the loan-to-value ratio, potentially placing landlords in breach of their funding arrangement and leaving the landlords susceptible to enforcement action. There is also a potential impact on landlords’ ability to access the CBILS loans;
- Wider consequences – for example, the value of pensions, given that substantial investments in property portfolios are owned by pension schemes.
Whilst it is entirely understandable as to why the Government wants to protect ‘at risk’ tenants, it cannot be a one-size-fits-all-solution. It appears that enforcement action is still available against the opportunistic tenant electing not to pay rent (although there is a potential for significant legal costs being incurred arguing the point), but it is clear that there needs to be consequential moratoriums put in place to protect landlords from lender enforcement. This needs to be provided for.
To speak to an expert property lawyer about managing your relationships with tenants, please contact David Moroney on 0161 838 7866 or email email@example.com.
View a recording of our recent webinar on managing relationships with tenants HERE.