Latest Government Guidance on Commercial Rent Arrears and Call for Evidence

Published 6 August 2021

The UK Government published its latest policy statement this week on supporting businesses with commercial rent debts, as well as an analysis of the responses to its Call for Evidence on pandemic rent arrears.

Earlier this year, the UK Government announced a Call for Evidence from commercial landlords and tenants to better understand how businesses were responding to the build-up of rent arrears during the pandemic (see our previous article here for more details).

One of the key drivers for this was to help the Government decide what to do when the moratoriums on commercial rent recovery were, at that time, due to expire on 30 June 2021.

Then on 16 June 2021, the UK Government announced that the moratoriums would be extended to 25 March 2022. It also said that a mandatory binding arbitration process would be put in place for all pandemic-related rent arrears. The UK Government’s press release on its announcement can be found here.

This move was largely unexpected and sent reverberations throughout the property industry, particularly landlords who have seen rent debts rack up without receiving any payment over the past 18 months and with limited options for recourse.

Since then, the UK Government has finalised its analysis of the responses to the Call for Evidence. A link to the consultation outcome, published on Wednesday, can be found here.

Following on from this, the UK Government also published a Policy Statement (accessible here). This is the latest formal Government guidance on the subject since its surprise announcement in June.

The Policy Statement

A summary of the key points to take from the Policy Statement are as follows:

• The UK Government has again clarified that the current moratoriums in place are:
  • 25 March 2022 – forfeiture/evicting commercial tenants
  • 25 March 2022 – CRAR (now 554 days)
  • 30 September 2021 – winding up petitions for pandemic arrears
• Unfortunately there is not, as yet, much more detail on how the proposed binding arbitration process will work, other than to reinforce that it should be used as a last resort and a nod towards the current Australian model.
• The UK Government has however confirmed that once the new system is in place and moratoriums are lifted:
  • The process will only apply to tenants impacted by Covid-19 closures.
  • For those tenants who are impacted, landlords’ ability to evict them for non-ring-fenced arrears will resume.
  • Interest can start accruing from the end of the ring-fenced period onwards.
• The UK Government also anticipates that landlords and tenants should both contribute to the cost of the arbitration, unless either party has acted in bad faith.
• A revised Code of Practice will also be published ahead of the arbitration scheme, containing principles which the Government is seeking to formalise in legislation.

There is nothing particularly new coming out of the Policy Statement that has not already been set out in previous guidance. Unfortunately there is still a great deal of uncertainty on how the proposed arbitration scheme is meant to work in practice, so it remains to be seen what the process will ultimately look like.

We are unlikely to know anything further about this at least until the revised Code of Practice is published, which at the time of writing this article is expected in the Autumn.