As you may be aware, since March 2020 the Government has provided a number of unprecedented support measures to protect business tenants from eviction. These measures were aimed at helping businesses which were restricted from using their premises due to the pandemic to remain viable.
Although lockdown restrictions no longer apply, and many workers have returned to offices, the Government has acknowledged that businesses may need further time to recover from pandemic losses and that the return to pre-pandemic revenues may be a gradual process. Earlier this year they announced that measures to protect commercial tenants from eviction and winding-up proceedings due to unpaid rent would continue until March 2022. They have also announced that a new binding arbitration process will be established, to assist landlords and tenants who cannot agree on what to do about unpaid rent that has built up during a forced premises closure.
This blog discusses whether you can leave your premises early due to COVID-19, what protections for tenants are in place currently and when these are due to expire, and how the Government intends the new arbitration scheme to work.
Leaving a premises early
Do I have the right to terminate or end my business tenancy early due to COVID-19?
This is unlikely. Whether you have this right will depend on the terms of your tenancy agreement, but in most cases you cannot terminate a business tenancy early simply because your business has been disrupted or you no longer want to conduct business at your premises.
Unless your tenancy agreement includes a break clause, or a ‘cessation’ or ‘force majeure’ clause, your tenancy will continue until the end of the expired term. Leaving without your landlord’s consent, or failing to pay rent, will be a breach of your tenancy agreement. However, you could consider other options such as surrendering your tenancy, assigning your tenancy, and/or subletting all or part of your premises.
For further guidance on options for leaving or downsizing your business premises, see our guide on Leaving or downsizing your tenancy during COVID-19.
Government protections for business tenants
What are the current protections in place for business tenants?
The Government has extended its temporary measures to help business tenants who may be struggling as a result of the 2020/2021 COVID-19 restrictions. These are listed below and include protection from eviction and/or winding up proceedings for a certain period. The protections currently in place for business tenants include:
A. Restrictions on eviction
Under current legislation, landlords are prevented from evicting business tenants for non-payment of rent until 25 March 2022.
However, where tenants have been able to pay their rent in full they should have done so, and the Government expects commercial tenants to have been paying their rent as soon as their sector was permitted to open.
See below for more guidance on what to do if you and your landlord cannot agree on how to deal with rent arrears that have built up during COVID-19 restrictions.
B. Restrictions on winding-up proceedings
Until 31 March 2022, landlords are restricted from bringing winding-up proceedings against companies for non-payment of rent or other sums due under the tenancy, unless they can show this non-payment was not due to the financial impact of COVID-19 (which will be extremely difficult to show in practice).
C. Restrictions on seizing goods as settlement for unpaid rent
Until 25 March 2022, a landlord cannot seize goods in lieu of rent owed using the Commercial Rent Arrears Recovery procedure (CRAR) unless the amount owed to them is equal to or more than 554 days rent.
D. Voluntary Code of Practice
The Government implemented a Voluntary Code of Practice for commercial landlords and tenants to encourage cooperation and negotiation between landlords and tenants. Landlords and tenants are encouraged to work together to protect the tenant’s business, and consider concessions like rental deferrals, payment plans and waivers.
Due to this code being voluntary, the Government has acknowledged that many landlords and tenants are not using the code to structure negotiations. The Government has advised that it intends to publish a revised Code of Practice which will be put into legislation before the new binding arbitration process begins.
What will happen after these temporary protections end?
After the measures listed above end, the Government has indicated that:
- a landlord will be able to evict a tenant for failing to pay rent due prior to March 2020, and/or failing to pay rent due during a period where the tenant has been permitted to open under coronavirus restrictions; and
- unpaid rent accrued during forced business closures will be ‘ring fenced’. If this ring fenced debt cannot be dealt with by negotiation between a landlord and tenant, there will be a binding arbitration process to determine payment (see below).
Unless you agree otherwise with your landlord, and depending on the circumstances (eg whether the rent arrears have been ring fenced), you may still be at risk of eviction or being sued for rental arrears at the end of the protected period. Therefore it is best to speak to your landlord and come up with a sustainable solution (such as a partial rent waiver or payment plan) if your rent is in arrears, rather than relying solely on the short-term protections above.
See Tenants affected by COVID-19 for further guidance on protections for commercial tenants during COVID-19.
Can my landlord evict me for other reasons before 25 March 2022?
Yes. Your landlord can still evict you for other reasons during this protected period, eg if you breach the terms of your tenancy agreement by damaging the property or they wish to exercise their break clause.
For further guidance on what happens if your landlord gives you notice to leave your premises, see our Q&A on Landlord ending a tenancy.
Dealing with unpaid rent due to business closures
What if I can’t pay rent that has built up while my business was shut?
The Government has announced that they intend to introduce legislation to ‘ring fence’ outstanding rental debt that has built up if a business has been required by law to close during the pandemic. Landlords and tenants will be expected to share the financial impact of the ring fenced rent arrears and work together to agree how to handle the money owed. The Government suggests that landlords may agree to waive some of the money owed, or agree a long-term payment plan.
Whenever you are making rent payments, it is a good idea to clearly state in writing how the payment is to be treated (ie which time period the rent relates to).
What if my landlord and I can’t agree on how to deal with unpaid ‘ring fenced’ rent?
The Government has advised that a binding arbitration scheme will be introduced to deal with ring fenced debt that a landlord and tenant can’t agree on. The result of the arbitration will be a legally binding agreement that both parties must stick to.
Although full details of the scheme are yet to be finalised and published, broad terms include:
- the arbitration scheme should be used as a last resort where other negotiations have failed;
- the scheme will only be available to tenants impacted by business closures;
- landlords can change interest on arrears incurred after the ringfenced period (if the terms of the lease allow);
- landlords can evict tenants who have not paid rent prior to March 2020, or after their the sector was allowed to open;
- landlords will still be allowed to forfeit for other breaches of the lease; and
- where both tenant and landlord negotiate in good faith, they should both contribute to the cost of arbitration. However, if one party has not negotiated in good faith, arbitrators may allocate the cost of arbitration as part of their decision.
If you require further advice on how to deal with your landlord and/or rent arrears, you can access a specialist lawyer in a few simple steps using our Ask a Lawyer service.
Marion joined Sparqa Legal as a Senior Legal Editor in 2018. She previously worked as a corporate/commercial lawyer for five years at one of New Zealand’s leading law firms, Kensington Swan (now Dentons Kensington Swan), and as an in-house legal consultant for a UK tech company. Marion regularly writes for Sparqa’s blog, contributing across its commercial, IP and health and safety law content.