Government extends ban on commercial evictions until March 2022

Chief secretary to the Treasury, Stephen Barclay, said: "We will introduce legislation in this parliamentary session to establish a backstop so that, where commercial negotiations between tenants and landlords are not successful, tenants and landlords go into binding arbitration.

"Until that legislation is on the statute book, existing measures will remain in place including extending the current moratorium to protect commercial tenants from eviction to 25 March 2022.

"To be clear, all tenants should start to pay rent again in accordance with the terms of their lease or as otherwise agreed with their landlords - as soon as restrictions are removed on their sector if they are not already doing so.

"We believe this strikes the right balance between protecting landlords and supporting those businesses that are most in need."

Oli Creasey, property research analyst at Quilter Cheviot, commented: “The news that the commercial eviction ban has been extended to 2022 is likely to be met with disappointment by landlords and strikes another blow to those investing in property. The ban has undoubtedly been helpful for a number of businesses, particularly small businesses who have been unable to operate during the pandemic lockdowns. Those who are unable to generate revenues have been able to stay afloat by cutting costs significantly, notably being able to furlough staff and not pay rent, but also receiving a business rate holiday and VAT deferral. However, there is also the suspicion that there are a number of large businesses who can pay, but are choosing instead to abuse the system.

“The approach by the majority of landlords to all tenants has been constructive, and most have engaged with those tenants experiencing difficulties rather than taking a tough line. However, they were left with little choice – with the eviction ban in place, there is very little legal recourse available to landlords to chase those tenants whom they believe “won’t pay” rather than “can’t pay”. As businesses recover, the “can’t pay” tenants should recover or leave the property vacant, but the “won’t pay” tenants have freedom to continue frustrating landlords for as long as this ban remains in place.

“What is clear is that there are a number of “won’t pay” businesses sitting on unpaid rent bills that they are willing and able to pay once forced to. Recent legal action taken by AEW UK REIT against large unnamed tenants demonstrates this – in both cases the tenants have paid all rent due since the start of the pandemic following a court order, and chose not to appeal the ruling. However, this case is not yet typical and we expect the majority of conflicts to be settled only after the eviction ban is lifted.

“This creates a problem for landlords, particularly those with retail properties which have been hit hardest during the crisis. Income from these properties will continue to be impacted by the ban, but expenses continue – banks may be prepared to waive interest cover ratios on debt, and may in extreme circumstances allow deferred payments, but their patience may also wear thin once restrictions are lifted. Likewise, investors are increasingly expecting dividends payments to resume and could divert their money to other assets or shares in order to receive the income they need. As a result, investment in the property sector may remain subdued if normal service is not resumed until 2022.”

Mark Gardner, specialist insolvency and corporate recovery lawyer at Excello Law, said: “Whilst we must strike a balance between tenants and landlords, kicking the can down the road yet again is not solving the problem. If the parties cannot agree now, they will not change their minds in six months when yet further arrears have accrued and more pain will be felt all around.

“We have a specialist court - the Business and Property Court - full of experienced Judges who deal with business and property matters. They are quick, adaptive and business oriented. Surely a simple and cost effective mechanism can be put together to bring about a resolution or solve the problem, at least for the next 12 months.”

Priya Sejpal, associate solicitor and property litigation specialist at law firm BLM, added: “This extension isn’t entirely unsurprising, given that there will still be many businesses who could struggle to pay rent whilst restrictions are in place, particularly those in the most affected sectors like nightclubs, hospitality or travel. However, whilst it’s some relief for tenants now, they could still be facing a barrage of legal action once the moratorium ends. It’ll also be frustrating news for landlords, given this is the fifth extension the government has imposed. Many landlords themselves will be struggling due to non-payment, and can’t be expected to bear the brunt of this policy forever.

“More than ever before, landlords and tenants need to negotiate with each other as per the Code of Practice for the commercial property sector, but of course this is a voluntary code and given the inherent frustrations both parties will be feeling, some may not be feeling the spirit of it. Many have called for new measures beyond a moratorium, so the mandatory binding arbitration period announced today is welcome news.

“However, will this be enough? A phased withdrawal where those in minor arrears can access the moratorium, whilst those who are in significant rental arrears could face eviction, may be a better way to strike a fair balance. It’s an idea that is not too dissimilar to the residential eviction side of things, with the rules applying differently depending on the landlord’s reason for giving notice and, where the reason is rent arrears, the level of the arrears. It’s something the Government will need to consider very carefully in the coming months. Otherwise, we’re in a position where we could still expect a flood of insolvencies and forfeiture claims, placing further financial burden on both landlords and tenants.”