Ban On Commercial Lease Evictions Extended Until March 2022

The Government has announced that the moratorium on commercial lease evictions has been extended until March 2022.  The decision has resulted in considerable controversy, with those in the arts, hospitality, and events sectors welcoming the news, and property companies furious that their legal rights are being further curtailed.

James Raynor, chief executive of the British and Irish arm of Grosvenor Property Group, told the media:

“I find it astonishing that one whole industry is being targeted by government intervention in this way and being deprived of their rights under the law. Owners and occupiers clearly need to work together in sensible partnership. I don’t see this helping, sadly.”

Melanie Leech, head of the British Property Federation, also condemned the move, telling City AM:

“The government has failed to recognise that commercial property owners are essential to the health of our town centres.”

“Another blanket extension to the moratoriums will provide further opportunity for those well-capitalised businesses who can afford to pay rent, but are refusing to do so, to continue their abuse of government and property owners’ support and will cast a long shadow over investment to build back better.”

It has been estimated that firms in retail and hospitality already owe £5bn in unpaid rent.

Full re-opening delayed

The announcement comes on top of the government’s decision to delay the final step in re-opening Britain following the Coronavirus pandemic lockdown measures that have been in place in some form since March 2020.  Prime Minister, Boris Johnson has delayed the dispensing of masks, social distancing, and limits on numbers allowed to attend sporting events, theatres, and cinemas will remain in place until 19 July 2021.  Nightclubs will also remain shut and the work from home edict will continue.  However, the rules on the number of guests allowed at weddings have been relaxed albeit with several restrictions such as facemasks to be worn indoors and table service only for food and drinks at hospitality venues.

The four-week delay to the end of lockdown measures will put even further pressure on the hospitality, cultural, and tourism sectors.  It is hoped that the extension on Commercial Lease Evictions will allow tenants time to re-establish their business and rebuild cashflow so they can pay off rent arrears and other debts whilst continuing to trade.

Landlord concerns on Commercial Leases 

Although the extension of the ban on commercial lease evictions provides relief to tenants for unpaid commercial rent, landlords argue that they have been expected to act as a bank to ensure the economy keeps functioning.  There is also the knock-on effect on pension funds which are heavily invested in the commercial property sector.

Landlords are also expected to make allowances for the ringfenced rent arrears when businesses were forced to close completely during lockdowns and ‘share the pain’ with tenants.  This has resulted in landlords writing off millions of pounds in debt.

The other concern landlords have is that large, profitable companies have been refusing to pay rent despite being allowed to trade through the pandemic.  Furthermore, many large companies are using CVAs to reduce their commercial property liabilities through closing stores, writing off arrears, and demanding rent be reduced in low-profit locations.  However, this month landlords won a rare victory concerning CVA’s when the High Court ruled in Carraway Guildford (Nominee A) Ltd and others v Regis UK Ltd and others (2021) that Regis Hairdressing Group’s CVA was for the benefit of its company shareholders, finance creditors, and trade suppliers at the expense of the company’s landlords.  Regis was proposing that rents would be reduced by between 25% and 75%, and arrears reduced to just 7% of their value.  Meanwhile, a long list of ‘critical creditors’ including shareholders and International Beauty LTD (which is also a shareholder) were left entirely unaffected by the CVA.  Mr Justice Zacaroli ordered the CVA to be revoked.

How a Commercial Property Solicitor can help commercial landlords and tenants

The continuing economic effects of the biggest pandemic in a century continues to be felt by everyone. What is essential for both landlords and tenants is that they are aware of their legal rights and have professional support to ensure their business interests are protected.

To make an appointment to discuss any aspect of commercial property law please email us or phone 020 8349 0321.

What are Commercial Property landlords’ rights around recouping rent arrears?

The Coronavirus pandemic has hit many sectors such as hospitality, beauty, and retail with savage force.  Throughout 2020, attention has been focused mainly on the plight of tenants who have seen their customer footfall and/or turnover plummet.  However, many landlords are also struggling to cover their own financial commitments due to tenants being unable to pay rent.  Our North London commercial property solicitors regularly advise landlords who are treading a fine line between collecting rent to cover their liabilities and at the same time supporting tenants’ businesses to ensure investment properties remain occupied once the pandemic ends. 

If you and your team are preparing a strategy for collecting rent on the March quarter day, below are some answers to questions our commercial property solicitors are being asked by clients.

What are my legal rights regarding collecting rent from my commercial property tenants?

At present, commercial landlords are restricted regarding the legal actions they can take against a tenant who cannot or will not pay rent.  Until 31 March 2021 landlords cannot evict commercial tenants for rent arrears or use the Commercial Rent Arrears Recovery (CRAR) procedure unless an amount of 366 days’ rent is owing.  These restrictions have been in place since March 2020; however, when extending the restrictions in December 2020, the government made it clear that no further extensions would be announced:

Secretary of State for Housing Rt Hon Robert Jenrick MP said:

“I am extending protections from the threat of eviction for businesses unable to pay their rent until March 2021, taking the length of these measures to one year. This will help them recover from the impact of the pandemic and plan for the future.

“This support is for the businesses struggling the most during the pandemic, such as those in hospitality – however, those that are able to pay their rent should do so.

“We are witnessing a profound adjustment in commercial property. It is critical that landlords and tenants across the country use the coming months to reach agreements on rent wherever possible and enable viable businesses to continue to operate.”

Restrictions on insolvency measures including statutory demands and winding up petitions have also been extended until the end of March.

If I cannot evict a commercial tenant or take legal action for payment of rent arrears, what are my options?

In June 2020, the government published a code of practice for commercial landlords and tenants.  The voluntary Code is designed to “support businesses to come together to negotiate affordable rental agreements. It builds upon the discussions already taking place by giving those tenants and landlords affected by the crisis the tools to come to a mutually beneficial agreement; ensuring that best practice becomes common practice.”

The Code asks both landlords and tenants to be flexible, act in good faith, and support the long-term viability of businesses and the jobs they provide.  For example, tenants who are seeking concessions must be transparent as to why such concessions are required and provide relevant financial information to the landlord if requested.  In turn, landlords should provide concessions where they can, considering their own fiduciary duties and financial commitments.  If a landlord refuses to allow requested concessions, they/it should give reasons for doing so. 

In another example of mutual support, landlords can elect to reduce service charges during lockdowns when a premise is not occupied.  And in return, tenants can agree to pay additional service costs to fund Coronavirus-related health and safety requirements that landlords are required to comply with. 

Specialist Landlord and Tenant Solicitors in North London

Both landlords and tenants are being asked to ‘share the pain’ during the pandemic and co-operation will be needed for many months to come.  A commercial property solicitor can advise you on your rights as a landlord under the existing commercial lease agreement.  They can also assist you with re-negotiating terms per the principles of the government’s Code of Practice.

For further advice please get in touch with one of our North London Commercial property solicitors by email or on 020 8349 0321.

Nasty ground rent stings in long leases

The recent adverse publicity regarding ground rent landlords (including developers) of new build and/or existing blocks of flats or houses which reserve high or potentially high ground rents has a further nasty sting in the tail for tenants of long leases of flats and  houses.

This “sting” emerges if the annual ground rent payable by the tenant is more than £1000 for a property in Greater London or more than £250 for a property outside Greater London – whilst this may not be in say the first 20 years of the term of the lease, ground rent could reach those pretty modest (certainly outside Greater London) levels in subsequent years or even when the lease is granted. If so, the Housing Act 1988 (HA 1988) applies and states that the long lease is an “assured tenancy” – that sounds harmless but it isn’t because, where there is an assured tenancy, the Landlord’s remedies to obtain possession/forfeit the lease are draconian in that it only takes the Tenant to be in 2 months’ arrears of ground rent and the Landlord can serve notice under section 8 HA and issue proceedings and, if the Tenant fails to pay the ground rent arrears before the Court Hearing date, the Court must make a possession order in favour of the Landlord who then gains a valuable long leasehold property (see footnote below) – it would be interesting to know whether landlords have adopted this tactic and how successful landlords have been.

It seems unlikely for tenants to fall into ground rent arrears but unscrupulous landlords may try to exploit this loophole by not serving ground rent demands and hope tenants forget to pay and don’t pay before the time of the Court Hearing for possession.

The bottom line is that this “sting” in the HA 1988 can erode considerably the existing statutory protection afforded to tenants of long leasehold flats or houses

This section 8 HA 1988 procedure shouldn’t be confused with the irrelevant (for long lease terms) defences a tenant has if the landlord brings proceedings for possession under the accelerated section 21 HA 1988 procedure (as amended by the Deregulation Act 2015) – the reason it’s irrelevant is because the tenancy deposit and other protections afforded to tenants (preventing a landlord from obtaining possession unless the landlord has complied) won’t apply nor be relevant for long leasehold terms of flats or houses.

However, it’s unclear what attitude lenders are taking in respect of existing long leases where the annual ground rent already is or will hit the above levels during the lease term.

What is clear (and, as is required under Council of Mortgage Lenders’ (now UK Finance’s) rule book) is that conveyancers and valuers must review these ground rent provisions and draw them to the attention of their buyer and lender clients and the conveyancer must obtain clearance from the lender at the outset i.e. well in advance of exchange of contracts before the buyer client incurs significant fees. Unless incentivised with a hefty premium , landlords are unlikely to agree to a deed of variation reducing the ground rent to well below those levels and it will be appreciated that, even if the landlords are prepared to do so, their costs (which can be substantial) will need to be paid by the Seller or Buyer and there will be delay.

Yes, provided the tenant has been registered at the Land Registry as the owner of the flat or house for at least  2 years (a) the lease term for a flat could be extended under the s42 procedure of the Leasehold Reform (Urban Development) Act 1993 (1993 Act) and (b) for houses, the freehold can be acquired under the Leasehold Reform Act 1967 (1967 Act) but that will come at a cost to a buyer (unless the Seller pays or makes a fair contribution towards the premium and costs) as well as cause delay – the same analysis applies where a flat owner may wish to mortgage or remortgage under section 42 of the 1993 Act  (i.e. cost and delay will arise) – with a house, there is a seldom-used right under the 1967 Act to obtain an extra 50 years’ extension to the lease term and a key reason it is seldom-used is because the ground rent is increased in accordance with modern up to date annual ground rent rates which could exceed, over time,  the nasty £1000 and £250 levels mentioned above.

Tenancies at a low rent and ASTs (including ending ASTs prior to expiry)

As assured shorthold tenancies (ASTs) are a type of assured tenancy, a tenancy cannot be an AST if it does not satisfy the criteria set out in section 1(1) of the Housing Act 1988 (HA 1988), or if it falls within one of the exceptions in Part 1 of Schedule 1 to the HA 1988. The criteria for these tenancies and exceptions are set out in Practice note: overview, Types of residential tenancies: overview.

If, for example, the tenancy was granted after 15 January 1989, it cannot be an assured tenancy (or, by definition, an AST) if it is a tenancy at a low rent, that is:

  • Tenancies for no rent (paragraph 3, Schedule 1, HA 1988);
  • If the tenancy was granted before 1 April 1990, those where the annual rentis less than two-thirds of the rateable value on 31 March 1990 (paragraph 3B, Schedule 1, HA 1988); or
  • If the tenancy was granted on or after 1 April 1990, those where the annual rentis £250 or less, or £1,000 or less in Greater London (paragraph 3A, Schedule 1, HA 1988).

Most leases that reserve a ground rent are usually granted for a premium and are long leases. However, if for example, the ground rent exceeds £250 per annum (or £1000 per annum in Greater London) and the other criteria in the HA 1988 are met, a long lease for which a premium has been paid can be an AST.

One implication of this is that an AST can be brought to an end during the term of the lease by the landlord if one or more of the grounds for possession set out in Schedule 2 to the HA 1988 are made out. This means that if a long leaseholder is in at least 2 months’ arrears of ground rent under a long lease which qualifies as an AST, a section 8 notice under the HA 1988 could be served under ground 8, which is a mandatory ground. Where a ground is mandatory, the court must grant an order for possession if the landlord can demonstrate the ground (section 7(3), HA 1988).

For further advice or if you have any questions please contact a member of our North London Property Team by email or call us on 020 8349 0321.