Commercial leases: Restrictions on forfeiture & CRAR until March 2022

The government has announced that:

• The restrictions on forfeiture of commercial leases and the use of Commercial Rent Arrears Recovery (CRAR) will be in place until the 25 March 2022 quarter day. These measures will apply to all businesses and are not sector specific.

• Restrictions on the use of statutory demands and winding up petitions will remain in place for a further three months for debts related to the pandemic.

• New legislation will be introduced to support businesses impacted by closures. Certain businesses such as nightclubs and other hospitality businesses will see accrued rent debts ringfenced where they have had to remain closed during the pandemic. The press release notes that landlords will be "expected to make allowances for the ringfenced rent arrears from these specific periods of closure due to the pandemic and share the financial impact with their tenants". The government notes that the new legislation will help tenants and landlords work together to reach agreement, but if an agreement cannot be reached there will be a legally binding arbitration process. The press release also states that "rent debt accumulated before March 2020 and after the date when relevant sector restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protection measures are lifted".

• The arbitration process will be delivered by private arbitrators and be in accordance with guidelines set out in the legislation. Arbitrators will be required to go through an approval process to prove their impartiality.

• The government's consistent message that businesses who are able to pay rent, must do so remains and the press release states that tenants should start paying their rent as soon as restrictions change and they are given the green light to open.

Further details on the new arbitration process and the timing of its introduction will be key to understanding the full impact of the measures which have been announced.

The reference to "binding arbitration" has sparked some discussion. Arbitration is traditionally private litigation and many would argue that there is no law to be determined in this case as the rent is contractually owed. Arbitration is also generally confidential and has limited rights of appeal to the courts. It is unclear at this stage whether this will in fact be a traditional arbitration process or a new process that is perhaps closer to other forms of dispute resolution. It is likely that many parties, even if they have been in negotiations and are close to an agreement, will be reluctant to finalise it until the details, powers and cost of the new arbitration process are known. 

If the ability to issue winding up petitions becomes available again there may also be other threats to the recovery of those affected businesses. As noted above, there is currently only a three-month extension to these measures. It is also not clear how the new arbitration process will interact with a landlord's ability to sue for the rent, which despite other limitations on the legal rights and remedies available to landlords has not been restricted. A recent case saw summary judgment obtained by a group of landlords whose rent had not been paid.

The press release states the full response to 'Commercial rents and COVID-19: call for evidence' will be published shortly and a review of landlord and tenant legislation is expected to follow later in the year.

Salt in the landlord's wounds? In this podcast Simmons & Simmons partners Tina Lockwood, Kirsten Kitt, Ross Miller and Ben Jones give their immediate thoughts on the announcement and consider it in the context of the insolvency regime.

In addition, the Welsh government announced on 28 June 2021 that it is extending the moratorium against forfeiture for non-payment of rent until 30 September 2021 in Wales. It also stated: "The UK Government recently announced how it intends to deal with the issue of commercial rent arrears built up during the pandemic. The Welsh Government will consider the matter further for Wales in the months ahead".