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Commercial forfeiture restrictions extended

View profile for Matthew Smith
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On 16 June 2021, the government announced that the restrictions on commercial forfeiture for unpaid rent arrears has been extended until 25 March 2022. The restrictions, which have been in place since 26 March 2020, were due to be lifted on 30 June 2021. However, citing concerns surrounding the impact from the delay with easing of lockdown restrictions, the government has now extended the restrictions for a further 9 months.

The news may come as a relief for many struggling businesses, but the extension is bad news for landlords that have tenants in arrears. Unless the government guidance changes, landlords will be unable to evict tenants (due to rent arrears) until March 2022. There are other options available to landlords, but unfortunately, most of these have either been directly or indirectly affected by the restrictions.

Commercial rent arrears recovery (CRAR) is a method of enforcement by which landlords can seize goods (from a tenant) to the value of the rent arrears. However, CRAR can only be used when the tenant is in a minimum amount of arrears.  Alongside the changes to forfeiture, the minimum outstanding rent for CRAR is now 554 days’ of rent.

Landlords are still able to bring money claims (for outstanding arrears) regardless of the ban on forfeiture. However, once landlords have navigated the likely lengthy court process, if enforcement is required then options are likely to be limited against businesses struggling economically.

The government has extended the restrictions on the issuing of statutory demands and winding up petitions for a further 3 months from 1 July 2021. A further consideration for landlords is whether a claim has or will ‘crystallise’ before judgment is obtained. Once a judgment is obtained, the value is fixed (save for interest and additional costs where applicable). Therefore, if the tenant remains in arrears after the judgment is obtained, the landlord will need to obtain a further judgment to include any additional arrears, incurring more time and costs.

It is worth noting that the forfeiture restrictions relate to cases of rent arrears only. Therefore, landlords are still able to evict tenants for breach of other covenants in a lease. In such circumstances, a landlord will be able to follow the procedure of serving a Section 146 Notice (requiring the tenant to remedy the breach), then applying to court to forfeit the lease if the tenant fails to remedy the breach. This can be a complicated procedure and landlords should always obtain advice if they are considering serving a Section 146 Notice.

The past 15 months have been challenging and unpredictable times for commercial landlords. Whilst some options remain, the effectiveness of these options are often inhibited by other restrictions in place.

Should you require any advice or assistance in respect of any of the issues above, please do not hesitate to contact us on 0161 696 6174 and our commercial landlord and tenant solicitors may be able to assist you.