Business

Luke Thompson: What will end of moratorium mean for commercial tenants?

If landlords decide to pursue rents, vacancies on the high street are likely to continue
Luke Thompson

IF life under lockdown has taught us anything, it is that June 30 2021 will be upon us much quicker than anticipated.

At present, this date marks the end of the temporary measures introduced to protect commercial tenants who are unable to pay their rent due to the pandemic. But it is unlikely we will see a hard withdrawal of all the measures on that date. Therefore, what are the options?

When the UK Government implemented a national lockdown in March 2020, non-essential businesses had to close their doors. Without the ability to trade, they were unable to keep up with rent payments. However, to avoid a mass exodus of commercial tenants, the government introduced temporary protection measures, which also applied in Northern Ireland, including a moratorium on forfeiture.

It was originally envisaged these measures would be required until the end of June 2020. However, this date was delayed multiple times as the pandemic continued to evolve, and as further lockdowns were required.

During this time, UK Hospitality has estimated rent debt is more than £2.5 billion across the hospitality sector alone. Estimates for the unpaid rent figure across the entire commercial sector exceed £6 billion.

Clearly, this is a significant issue and one without a simple answer. To assist, the UK government has completed a consultation with the commercial real estate industry. This was a call for evidence in support of potential options following 30 June 2021.

The first option is to keep the current deadline, removing the protections, and allowing landlords and tenants to make commercial arrangements. In absence of agreement, landlords can enforce the debts through the courts. The risk is, if landlords decide to pursue the rents (or are compelled to by their lenders), many tenants will be insolvent, vacancies on the high street will continue and the court system will become mired.

Another option would be to intervene with taxpayers' money to assist with the debts owed to landlords. However, this would be politically unpopular.

A viable option could be to put a mechanism in place that allows landlords and tenants to negotiate a solution. This offers both parties the security of ongoing occupation and seems to have broad support. Many landlords and tenants have already agreed rent concessions to share the financial pain of the pandemic.

British Land and Landsec, in partnership with the British Property Federation released a statement that included a proposal to ring-fence debts accrued prior to 30 June 2021 and extend protection for those arrears only until December 2021. This allows property owners and their occupiers a period to agree equitable concessions. They also propose normal market rent operations should apply to all arrears from 1 July 2021 onwards.

UK Hospitality included similar proposals, including an extension of the moratorium to the end of 2021 and a binding adjudication process between owners and occupiers, with at least 50 per cent of debt written off during any period of closure.

A swift and all-encompassing response was implemented at the start of the pandemic, but businesses have fared in different ways and therefore the government may favour a response that assists those hit the hardest. Whether that will result in a fair outcome for all parties, only time will tell.

:: Luke Thompson (luke.thompson@dwf.law) is associate, real estate, at DWF Belfast (www.dwf.law)

Enjoy reading the Irish News?

Subscribe now to get full access