Government update on Commercial Tenant Rent Arrears

Recap of our June update

In June 2021 we discussed that despite the Government being sympathetic towards commercial tenants during the pandemic, landlords were still able to reclaim rent arrears through the courts. The overarching advice from the Government in its Code of Practice was that landlords and tenants should discuss and negotiate rent arrears to seek a mutually beneficial solution. Although co-operation was encouraged, the courts did not hesitate to order that rent was paid in certain circumstances, such as in the High Court judgement Bank of New York Mellon (International) Ltd v Cine-UK Ltd and other (2021). As lockdown and social distancing restrictions have been lifted, it appears that the Government's approach to commercial tenants with rent arrears is slowly clamping down.

New Government guidance

The Government Policy Paper 'Supporting businesses with commercial rent debts: policy statement' confirms the Government's intention to ring-fence rent arrears that have accrued throughout the pandemic. However, this only applies to commercial tenants who have been unable to pay as a direct result of enforced business closures. As such, tenants who can pay their rent in full and have avoided the impact of the closures will be liable to pay their rent arrears in full. This will be in place until March 2022.

Slightly askew from the encouragement for landlords and tenants to reach amicable agreements the Government outlined that a new arbitration system will be introduced by legislation, to deal with ringfenced rent arrears in circumstances that the parties cannot reach settlement following the advice of the Code of Practice. Although the Government are yet to publish details of the system, it is expected to grant a power to award costs when a party fails to negotiate.

Impact of the guidance

The new arbitration system should be a last resort. It is clear that the Government are still expecting landlords to share some of the financial burden created by the pandemic. Landlords remain supported as those who have not been impacted by the restrictions will need to pay their rent in full, but they must wait until March 2022 for normal contractual arrangements to return. Hopefully, the Government policy will allow business to return to normal and reduce the current lag in payment of rent in the hospitality sector.