What tenants need to know as Covid rent arrears support ends

The Government’s support for commercial tenants with rent arrears from the pandemic has ended, giving landlords the opportunity to take action for non-payment of rents. Fuelled by the cost-of-business crisis, the financial situation for businesses and tenants is more precarious than ever, making it vital to prepare for a potential claim. But how best can tenants manage payments whilst maintaining a good landlord/tenant relationship?

With retail tenants already struggling to cope with reduced footfall on the high street and slower trading due to the rise of e-commerce, any action taken against them over rent areas could be business critical. This action could include the forfeiture of leases, debt claims at court or enforcement agents attending properties.
The solution to tackling rent arrears for some tenants may be as simple as continuing to pay current rents as they fall, either each month or each quarter, with an additional amount on top to reduce past arrears, but this is not guaranteed. Some landlords may be prepared to take legal action now. That said, ensuring that current rents are paid on time may protect the tenant/landlord relationship and should assist during any future payment negotiation talks.

Whilst avoiding action from landlords may could require the payment of arrears in full, for retail businesses facing increased running costs and a dip in consumer spending, this simply may not be possible. In this instance it might be worth considering a renegotiation for a reduced amount, as there is merit in seeking to reach a commercial settlement with a landlord who may wish to avoid engaging in lengthy, costly, and uncertain litigation. During this time, retail tenants should also be checking all previous communications to find any informal agreements to rent deductions, payment holidays or deferrals which can be referred to. This evidence of an informal agreement could hinder a landlord’s ability to enforce action against outstanding rent debts.

Should litigation be brought by a landlord, tenants are still able to take action. For example, if a landlord forfeits the lease to have the tenant removed as a result of unpaid rent, retail tenants may want to apply to the court for relief to get the lease reinstated. For tenants involved in disputes of this kind, it is essential that advice is sought from solicitors and surveyors before the action is commenced, as there may be a way to avoid litigation in the first instance.

Finally, if payment of existing rent arrears on an ongoing basis is unlikely to be realistic for a tenant, it may be worth considering whether there is an opportunity to break or surrender a lease to prevent any further liabilities being incurred. However, those tenants who don’t make arrangements to ensure debts are paid could face different types of landlord action, from enforcement agents to insolvency proceedings; all situations that are best avoided.

With the moratorium on action against retail tenants with rent arrears from the pandemic having coming to an end, and landlords and tenants alike facing increased cost pressures, maintaining a good landlord/tenant relationship can seem like a daunting task. But with the right level of communication, planning and negotiation and expert advice, retail tenants should be able to protect themselves against claims from landlords whilst maintaining a good landlord/tenant relationship.

James Fownes is a Birmingham-based partner and commercial property expert at Shakespeare Martineau