The government has announced that the current commercial rent arrears protection will continue until 25 March 2022, two years since it was first introduced.
The moratorium on the forfeiture of a commercial lease and CRAR (commercial rent arrears recovery) protects commercial tenants from eviction if they cannot pay their rent.
Commercial rent arrears protection was introduced at the beginning of the pandemic in March 2020 with the aim of saving jobs within businesses that were struggling to trade or completely prevented from doing so.
Originally the intention was to remove the protections on 30 June 2021 but, following a consultation exercise, that date has been pushed back nine months.
For those commercial tenants worst hit by the pandemic, such as hospitality, leisure and retail, this will no doubt come as a relief. It will give them additional time to build their businesses back up to pre-pandemic turnover levels.
However, for many landlords, by the time the protections are lifted, they will have endured two years of reduced rental income.
The Government has always been clear that landlords and tenants should work together to review rental payments and that tenants should start to pay rent in accordance with their lease as soon as restrictions on their sector are lifted, or at the very least, come to an arrangement with their landlord so that an agreed amount is paid.
By March 2022 when the commercial rent arrears protection is finally lifted some businesses are going to be in significant arrears and unless they have entered into negotiations with their landlord to resolve debt issues, will then face action.
In an attempt to manage this, the Government is expected to introduce legislation to support the orderly resolution of such debts, including a backstop, so that when negotiation isn’t successful, both parties will be required to undertake compulsory arbitration.
Clearly the hope is that the additional nine months provides sufficient time for businesses to trade their way out of debt, but it’s hard not to be concerned that on 25 March 2022 a rent arrears timebomb will be detonated.