Hardship ahead for commercial renters

Posted By:
Eversheds Sutherland

15th Jun 2021

Gareth Planck, Partner, Eversheds Sutherland

The reopening of our economy and society across these islands is extremely positive and welcome news as we seek to return to some form of normality. Recovery and rebuild will be the watchwords for businesses and governments going forward and people are being encouraged to shop and support local to boost businesses which have been badly hit by the pandemic.

Sectors like retail, leisure and hospitality have been among the worst and most disproportionately affected since last March, forced to shut their doors for long periods and shun customers in order to stop the spread of the virus. While the struggles of high street and city centres businesses, especially those in the retail sector, were well documented before the coronavirus, the pandemic has been the straw that broke the proverbial camel’s back for many retailers, especially those who did not have strong online or e-commerce presences. In recognition of this, the Executive recently established its High Street Task Force which aims to bring forward long term policy proposals to help support and rejuvenate the high street.

To help ease the difficulties faced by businesses, the government passed a series of legislative measures, including the Coronavirus Act 2020 and the Corporate Insolvency and Governance Act 2020.  These brought temporary protections for businesses including restrictions on the forfeiture of commercial leases, and presentation of winding up petitions and statutory demands. While these measures have been extended until 30 June this year, businesses should now consider how they will cope when they run out. A number of important factors must be considered including where it leaves the landlords of commercial premises, on whom should the financial burden of the pandemic fall, and does there remain an obligation on tenants to pay rent?

Recent legal rulings in England and Wales in April confirm that businesses remain liable to pay the accumulated rent, despite their hardships. While this doesn’t apply to Northern Ireland yet, businesses should begin preparing for such a situation as it is likely to inform the courts’ thinking locally when the matter inevitably arises.

Greater and sustained communications between all parties can go a long way to avoiding the unpleasant situation of ending up in a court battle between tenant and landlord. For tenants who may be in rent arrears, however, there should be a recognition that as lockdown winds down and legislation runs out, the ball is increasingly in the court of the landlord.

It’s crucial that commercial tenants are now aware of their obligations, but landlords should continue to take a pragmatic and flexible approach where possible. They should be cognisant of the commercial considerations when dealing with their tenants, as rental arrears will largely be unrecoverable from an insolvent company.

The government’s action at the start of the pandemic was radical and may have been key in saving thousands of businesses. However, while this protected commercial tenants from forfeiture in the short term, it likely won’t protect them from landlords recovering this rent in the longer term. As the economy begins to reopen, it’s incumbent on all parties now to take constructive steps to avoid lengthy and potentially fatal legal battles.