With the Government’s announcement this week that freedom day will be delayed until 19 July, it was inevitable that some of the Government protection measures aimed at safeguarding businesses would also be extended.

It was announced on Wednesday  that the restrictions imposed on landlords to prevent forfeiture of commercial tenancies were being extended from 30 June 2021 to 25 March 2022. Other measures including restrictions on pursuing commercial rent arrears recovery and the ability to serve statutory demands and winding up petitions were also extended to 25 March 2022 and 30 September 2021 respectively.

Whilst the announcement has been welcomed by many businesses in the hospitality sector and other retailers who have been struggling with the impact of the closures imposed by the pandemic, for landlords it is another blow. It is estimated that there is a liability of over £6 billion worth of arrears which has accrued since March 2020 when the first lockdown occurred.

Throughout the pandemic, the Government has tried to encourage landlords and tenants to reach agreement where possible to avoid costly court action and insolvency.

This has been demonstrated by its introduction of the (voluntary) Commercial Landlord and Tenant Relationship Code in June 2020 (which is due to expire on 24 June 2021) and now the further extension to the restrictions on certain of the usual remedies landlords turn to where there is tenant default.

In its announcement the Government stated that it would bring in new rules to assist businesses which have had to remain closed, which would include ring fencing covid-19 commercial rent arrears with landlords encouraged to share the financial impact with their tenants.  It is intending to bring in legislation to promote landlords and tenants working together to come to an agreement in respect of the ring fenced arrears and a binding arbitration mechanism would be imposed if landlords and tenants could not reach agreement by March 2022.

Charles Russell Speechlys hosted a surveyors webinar on 16 June 2021 which included polling of a number of surveyors from leading surveying practices and in house corporate teams to assess their take on some of the measures that had been introduced and potential changes to it.

Only 5% of those polled found that the Commercial Landlord and Tenant Relationship Code was often used, 57% said that it was never used, with only 38% saying it was rarely used.

88% confirmed that most parties were agreeing concessions, with 4% indicating that landlords were suing for arrears through the courts and 8% were looking at other remedies (for example pursuing rent deposits or guarantees).

When asked whether they thought an arbitration or adjudication mechanism should be introduced for historic rent arrears, 65% thought that the measures should be binding with only 35% non binding.

The result of our polls indicate that concessions have been agreed notwithstanding the introduction of non-mandatory measures, such as the Code, and a binding arbitration process  will in some cases be required to reach agreement on historic arrears.

COVID has caused significant financial difficulty for many and whilst the majority of landlords and tenants  have been pragmatic and agreed concessions, it seems that legal measures are necessary to  deal with accumulated arrears in some cases to avoid the economic  fallout from court action and insolvency proceedings if terms cannot be agreed.

The recent cases of Commerz Real Investmentgesellschaft mbH v TFS Stores Limited and Bank of New York Mellon (International) Ltd v Cine-UK Ltd and others are evidence that some landlords are choosing to sue for arrears and that the Courts whilst sympathetic to the tenants’ positions in light of the effects of the pandemic on their businesses have found in favour of landlords and rejected arguments that landlords would be prevented from bringing claims for arrears in light of the restrictions imposed by the Government.

Just how the arbitration process will work depends on the detail of it but to have a third party arbitrator impose terms which could potentially waive or vary lease terms will be a matter of concern for both landlords and tenants.