Lawyers in the frontline of commercial landlord and tenant negotiations have mixed views on what should happen when the government’s moratoria on the recovery of rent and other arrears expires at the end of June, the Property Litigation Association has reported.
However, in a survey of the PLA’s members, most respondents believed that commercial tenants should be given more time to pay Covid arrears where it’s needed.
Responding to the government’s call for evidence on commercial rents and Covid-19, the PLA endorsed the suggestion by Landsec, British Land and the British Property Federation that Covid arrears be ring-fenced, distinguishing between rent arrears accrued during Covid trading restrictions and future rents.
But Peter Bourke, chair of the PLA’s law reform committee, believes things should go a step further.
Bourke said: “For pre-June arrears, there needs to be a disciplined regime over a specified period whereby, if instalment payments of arrears are paid on time, landlord remedies (such as CRAR and insolvency procedures) should remain restricted. However, if those payments are not met, then landlord remedies should be reinstated. Provided the time periods are sensible, this should redress the imbalance currently at play in what we consider to be a fair and reasonable way.
“Assuming no further significant lockdowns or other Covid-related business interruptions, it would be appropriate for landlords’ remedies to be reinstated in relation to post-June obligations.”
In a more detailed analysis of the survey findings, 72% of respondents said the government’s code of practice was not effective – with most believing it had no teeth.
While most members agreed that further changes were needed, opinions varied on which of the six options presented by the government would be most effective.
The lifting of all restrictions was the most popular option among lawyers who mainly acted for landlords. However, the PLA pointed out that the government should recognise that most landlords would not take steps to forfeit their tenants’ leases even if the power was available to them, as it could result in empty premises and rates liability.
Both landlord and tenant lawyers largely agreed that more favourable measures be targeted towards those tenants who were fully closed during the pandemic (circa 90%) and to a lesser degree towards those who could trade on a restricted basis (65% for landlord lawyers and 76% for tenant lawyers).
How these measures should be adopted drew multiple suggestions. For landlord lawyers, these included a phased withdrawal, starting with the oldest arrears; ring-fencing Covid period arrears; providing landlords with incentives to find compromises with tenants; toughening up the Code of Practice to incorporate cost sanctions and offering more flexible terms for relief from forfeiture (not dissimilar to those used in mortgage possession claims).
Tenant lawyers suggested means testing of tenants, to include online sales, and targeting the worst debtors, namely those with more than six months of debt, as they are unlikely to have long-term survival prospects.
Just over half (56%) of landlord lawyers are in favour of targeted measures for six months with the remainder favouring three months; 62% of tenant lawyers favour six months, with most of the remainder favouring 12 months instead.
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