Rent arrears moratorium extended – Beware a sting in the tail

Stuart Powlesland, Director, Avison Young

The extension of the Government’s rent arrears moratorium means that commercial landlords are prevented from taking tenants to court for non-payment of rent for a further nine months. However, there is a sting in the tail for tenants.

Stuart Powlesland, Director, Avison Young, takes a look at what’s in store for both landlords and tenants:

Whilst many businesses across the West may be breathing a sigh of relief following the Government’s extension to the rent moratorium from the end of June, to March 2022, they should beware, there is still a “sting in the tail”.

If a tenant has not paid any rent since March 2020, at the start of the first national Lockdown, they may still face bailiff action should September 2021 quarter’s rent not be paid, as the moratorium does allow for such action on the equivalent of over 18 months arrears built up as a result of Covid-19.

Our advice to both tenants and landlords across all sectors, where ongoing issues exist, is to heed the Government message, and start talking to resolve unpaid rent as a partnership. It may be tempting for tenants to sit back and not discuss any proposed compromise, however, the Government will be applying pressure to both sides to discuss rent arrears over the next nine months with a greater level of pragmatism.

The intensity of landlord and tenant discussions is indeed increasing, although there are some parties still not prepared to meet half-way. So what can be done to encourage successful collaboration within the Government’s voluntary code of practice, which calls for a partnership between landlords and tenants, with both parties acting reasonably, transparently and in good faith.

The further extension to the moratorium may result in parties backtracking on previous discussions, or delaying discussions, but that undermines the good faith principle.

And because of the non-mandatory nature of the Government’s code, there is nothing to stop landlords taking court action over any arrears, and the courts awarding in their favour, although enforcing that action is the problem.

It’s clear most landlords are being constructive and commercially sensible, with two bases of generic agreements being put forward: an agreement purely regarding the rent arrears; or an agreement regarding the variation to the lease terms.

In our experience, there needs to be a clear understanding in writing whether these agreements offer a write-off, or a period of rental deferment for the arrears, which have been “ring fenced”. If the landlord agrees for a rent write-off, then these amounts or any other rent-free inducements need to be explicitly stated to avoid any misinterpretation.

Similarly, if the landlord is considering a rental deferment, then the time period for repayment or instalments and accrued interest must be outlined in the rent agreement to avoid any misunderstanding. There may be a consideration of both a rent-free period and a rental deferment, which again needs to be explicitly stated in terms of the time period, the repayment or instalments and the accrued interest.

A word of caution should be noted for tenants who have impending lease breaks, as those affected should be completely certain that any rent arrear agreements do not undermine the ability to break the lease mid-term.

Both landlords and tenants should be looking carefully at their options and starting a conversation. These discussions could forge a better relationship between landlord and tenant, giving confidence and resilience to both parties and ensuring the future of bricks and mortar in a fundamentally changing market.