Commercial rents – what happens once the moratorium lifts?
The statutory moratorium on lease forfeiture for commercial leases is set to expire at the end of June 2021. If it is not extended then tenants who have taken advantage of this will be required to resume rental payments as well as to pay any rent that has accrued during the moratorium.
We have received enquiries from tenants and landlords over the last few weeks anxious to understand what they can do about rent arrears and enquiring whether now is a good time to negotiate a new lease.
Our general thoughts on this are set out below. Obviously much will depend on your individual circumstances so it is important you seek specific advice before making any decisions.
With the passing of each quarter day, the number of tenants who continued to pay their rent during the moratorium decreased. This means that many landlords will be owed considerable sums that they will be eager to collect and lots of tenants will have built up significant arrears but may not have had a chance to build up any significant turnover to satisfy them.
There has been a lot of debate about whether the government should be bailing out landlords but it is difficult to imagine that it will be keen to add further sums to the already eye watering levels of debt it has already racked up as a result of the pandemic.
We are therefore assuming when the moratorium is lifted that the existing remedies open to landlords pre-pandemic for non-payment of rent will again be available (Commercial Rent Arrears Recovery (CRAR), forfeiture, statutory demands and winding up petitions).
If this assumption is correct then parties need to open communication channels to agree a repayment plan and quickly establish what the position is. Are either party considering a restructure? Is an insolvency process likely?
It is worth noting that the current moratorium is not absolute, then the usual remedies for non-payment of rent are still available, where tenants were in arrears pre-pandemic and insolvency proceedings can be commenced if a landlord can show the tenant has not been obviously affected by the pandemic.
For those tenants with break options in the near future, they may use this as a way to renegotiate the terms of their lease, especially if they have had to reduce their workforce or have decided to opt for more flexible working post pandemic. It is a commercial decision whether a landlord opts to re-negotiate in these circumstances. Tenants will need to consider how valuable the space is to them. If the location is critical then a tactical exercise of a break option may be a dangerous route to take.
Landlords may be unwilling to negotiate on any arrears as they too will be keen to generate income again. Much will depend on individual circumstances and pressure from other stakeholders such as lenders as well as demand for the property.
As the moratorium is likely to be lifted sometime in 2021 then landlords and tenants need to start preparing now for a world when rent payments will be due in the usual way and non-payment will attract legal consequences.
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