How will the commercial property market exit COVID-19 restrictions?

The government has finally opened its call for evidence from commercial landlords and tenants to understand how they are dealing with the arrears issues that have resulted from the coronavirus pandemic.

The primary concern is to understand the risk to economic recovery posed by remaining rent debts.  The evidence gathered will be used to inform government policy as to how to exit the existing restrictions on landlords' remedies - at least in so far as forfeiture and CRAR are concerned.  (The survey is not concerned with the content of the restrictions on winding-up petitions and statutory demands, although it notes some interest "in the length of time for which these measures should be in place and how they relate to the other measures".  With regard to CVAs, the government says that it will monitor these separately.)

The government's view is that landlords and tenants should have been using "the period of shelter" it has provided - and which is in place until 30 June 2021 - to negotiate openly and in good faith to agree "fair and sustainable" terms in respect of arrears owed and ongoing lease terms; refusal to negotiate by either party goes against the Code of Practice.  However, the government is aware that many landlords and tenant businesses have been unable to reach agreement.  It recognises that continuing uncertainty over when businesses would be able to resume trading normally has compounded the difficulties faced by both sides, with various landlords and tenants taking different approaches:

• Many landlords have been willing and able to support their tenants with rent waivers and adjusted lease terms.  However, there are concerns that some landlords are refusing to engage in negotiations on the repayment of rent arrears, and of the potential impact of this on the creation and retention of jobs in the economy.  
• According to the government website, levels of rent collected during the pandemic show that the majority of tenants have sought to pay at least something towards their rent.  However, it is clear that some tenants who could pay rent are refusing to do so, and the government is conscious of the potential impact of this on the commercial landlord and investment sectors.  

The government is clearly concerned that, unless landlords and tenants are able to resolve any current difficulties in a way which enables businesses to return to viability as quickly as possible, the country risks further economic harm including the potential for this to contribute to higher levels of unemployment, particularly among young people.  It is also noted that the leisure and non-essential retail sectors are likely to require a longer period of adjustment to allow for more trading and the ability to negotiate with their creditors.  

However, yet again, the government seems to be focused on the risk that landlords may evict tenant businesses "that have the potential to return to viability" and that there will be widespread vacancies in commercial property, with premises becoming difficult to re-let and values continuing to fall.  This shows a continuing lack of trust in commercial landlords, who are well-used to judging whether or not it is sensible to support an existing tenant business for the long-term.  

Those who wish to have their say on their experiences of commercial rent arrears negotiations during the past year should ensure that they complete the survey by 4 May 2021 by heading to https://consult.communities.gov.uk/urban-policy/commercial-rents-and-covid-19-call-for-evidence/

The government has also confirmed that it will publish further guidance shortly to be read alongside its existing Code of Practice.  This will involve a template on which tenants can describe how the pandemic has affected their business and make a reasoned offer to their landlord to deal with accumulated arrears and ongoing lease terms. The intention is for landlords then to use this template to respond to the tenant's offer in a constructive way.  Watch this space...