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22 Mar 2022

Good news for landlords wishing to recover rent arrears

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Three major restrictions on landlords' ability to recover rent arrears are about to end. Landlords' options will very shortly be much wider.

With the exception of protected rent arrears (see below both as to what this means and what the position is with them) landlords will shortly have the following options:

  1. Winding-up petitions. From 1 April 2022 landlords can serve statutory demands and issue winding-up petitions against tenants who owe undisputed debts of more than £750. Pre‑pandemic this was an effective way to get tenants to pay their arrears. It will become so again.
  2. Commercial rent arrears recovery (CRAR). Until this Friday 25 March 2022, CRAR cannot be exercised unless tenants owe at least 554 days' rent. From Saturday 26 March 2022 the threshold drops to the pre-pandemic level of just 7 days' rent arrears.
  3. Forfeiture. The prohibition on forfeiting leases for non‑payment of rent or other sums ends on 25 March 2022. The usual grace period that the lease gives a tenant to pay before the landlord can forfeit (normally 14 or 21 days) still applies. So on 26 March it will be possible to forfeit for, say, any unpaid Christmas Day 2021 rent, and we are already receiving instructions to forfeit leases for non-payment of rent next week. However it won't be possible to forfeit for non-payment of any Lady Day 2022 rent straight away, as the right to forfeit for that will not arise until the end of the 14/21 day grace period.

Waiver of the right to forfeit

From 25 March 2020 s82(2) of the Coronavirus Act 2020 made it impossible to waive the right to forfeit for non-payment of rent or other arrears other than by an express written waiver. That provision ends this Friday. So from Saturday demanding or accepting the Lady Day 2022 rent or exercising CRAR will waive the right to forfeit for all earlier unpaid rent (other than protected arrears). To avoid any unintentional waiver, landlords should consider now whether to put a rent stop in place.

Protected arrears

Any arrears (whether rent, service charges, insurance rent, interest or VAT) in respect of business tenancies that were required to close during the pandemic will be a "protected rent debt" if they accrued between 21 March 2020 and the date the specific coronavirus restrictions affecting the relevant business finally ended. For example:

 

Period of Protection

Non-essential retail and leisure

21 March 2020 – 12 April 2021

Garden centres

21 March 2020 – 13 May 2020

Hospitality and nightclubs

21 March 2020 - 18 July 2021

(NB the dates are slightly different for Welsh properties). Recovering these protected arrears is less straight-forward. These arrears are covered by the Commercial Rent (Coronavirus) Bill 2021-22, which will become law by 25th March. Protected arrears are ringfenced for 6 months (i.e. until 25 September 2022). During this time landlords and tenants can either reach an agreement on these arrears or either party can refer the dispute to statutory arbitration. The arbitrator will then make a binding award, picking whichever of the landlord's or tenant's proposals (for the amount payable, the time for payment and the interest payable) most reflects the aim of preserving the viability the tenant's business (so far as that is consistent with preserving the landlord's solvency) whilst, to the extent consistent with that first aim, requiring the tenant to honour its lease. Until 25th September 2022 (or, if the debt is referred to arbitration by then, the conclusion of that arbitration) all enforcement methods are prohibited in respect of protected arrears. See the flow chart below for greater detail.

Flow chart

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