The Government has announced that the moratorium on commercial lease evictions has been extended until March 2022. The decision has resulted in considerable controversy, with those in the arts, hospitality, and events sectors welcoming the news, and property companies furious that their legal rights are being further curtailed.
James Raynor, chief executive of the British and Irish arm of Grosvenor Property Group, told the media:
“I find it astonishing that one whole industry is being targeted by government intervention in this way and being deprived of their rights under the law. Owners and occupiers clearly need to work together in sensible partnership. I don’t see this helping, sadly.”
Melanie Leech, head of the British Property Federation, also condemned the move, telling City AM:
“The government has failed to recognise that commercial property owners are essential to the health of our town centres.”
“Another blanket extension to the moratoriums will provide further opportunity for those well-capitalised businesses who can afford to pay rent, but are refusing to do so, to continue their abuse of government and property owners’ support and will cast a long shadow over investment to build back better.”
It has been estimated that firms in retail and hospitality already owe £5bn in unpaid rent.
Full re-opening delayed
The announcement comes on top of the government’s decision to delay the final step in re-opening Britain following the Coronavirus pandemic lockdown measures that have been in place in some form since March 2020. Prime Minister, Boris Johnson has delayed the dispensing of masks, social distancing, and limits on numbers allowed to attend sporting events, theatres, and cinemas will remain in place until 19 July 2021. Nightclubs will also remain shut and the work from home edict will continue. However, the rules on the number of guests allowed at weddings have been relaxed albeit with several restrictions such as facemasks to be worn indoors and table service only for food and drinks at hospitality venues.
The four-week delay to the end of lockdown measures will put even further pressure on the hospitality, cultural, and tourism sectors. It is hoped that the extension on Commercial Lease Evictions will allow tenants time to re-establish their business and rebuild cashflow so they can pay off rent arrears and other debts whilst continuing to trade.
Landlord concerns on Commercial Leases
Although the extension of the ban on commercial lease evictions provides relief to tenants for unpaid commercial rent, landlords argue that they have been expected to act as a bank to ensure the economy keeps functioning. There is also the knock-on effect on pension funds which are heavily invested in the commercial property sector.
Landlords are also expected to make allowances for the ringfenced rent arrears when businesses were forced to close completely during lockdowns and ‘share the pain’ with tenants. This has resulted in landlords writing off millions of pounds in debt.
The other concern landlords have is that large, profitable companies have been refusing to pay rent despite being allowed to trade through the pandemic. Furthermore, many large companies are using CVAs to reduce their commercial property liabilities through closing stores, writing off arrears, and demanding rent be reduced in low-profit locations. However, this month landlords won a rare victory concerning CVA’s when the High Court ruled in Carraway Guildford (Nominee A) Ltd and others v Regis UK Ltd and others (2021) that Regis Hairdressing Group’s CVA was for the benefit of its company shareholders, finance creditors, and trade suppliers at the expense of the company’s landlords. Regis was proposing that rents would be reduced by between 25% and 75%, and arrears reduced to just 7% of their value. Meanwhile, a long list of ‘critical creditors’ including shareholders and International Beauty LTD (which is also a shareholder) were left entirely unaffected by the CVA. Mr Justice Zacaroli ordered the CVA to be revoked.
How a Commercial Property Solicitor can help commercial landlords and tenants
The continuing economic effects of the biggest pandemic in a century continues to be felt by everyone. What is essential for both landlords and tenants is that they are aware of their legal rights and have professional support to ensure their business interests are protected.
To make an appointment to discuss any aspect of commercial property law please email us or phone 020 8349 0321.