The UK Government has announced a further extension to certain protective measures for businesses which are currently in place in response to the COVID-19 pandemic.
The current restrictions on the rights of landlords to forfeit commercial leases, which was due to expire on 30 June 2021, will be extended to 25 March 2022 for all commercial tenants. In addition, the Government has announced that new legislation will be tabled which will apply to businesses affected by COVID-related closures, under which rent arrears which have built up during such closures will be ring-fenced and landlords will be expected to make allowances and "share the financial impact with their tenants". The draft legislation has not yet been released, but we understand from the Government's announcement that this may involve rescheduling the payment of arrears over a longer period of time and/or agreeing to write off certain amounts. In the absence of a consensual arrangement between landlord and tenant, the proposed new law will impose a binding arbitration process to resolve the dispute.
In addition, the Government has announced that the temporary prohibition on creditors filing statutory demands and winding up petitions (unless creditors can show that the non-payment is not a result of Covid-19) will be extended for a further 3 months to the end of September 2021.
The announcement did not indicate whether the suspension of directors' liability for wrongful trading (which is currently due to expire on 30 June 2021) will be extended.
Whilst these extensions are not surprising, particularly given the delay of the Government's plans to lift the last of the COVID-19 restrictions in England, they do not remedy the problem or the potential surge of insolvencies that are expected to follow the expiry of such measures. Many tenants using insolvency procedures such as CVAs and Restructuring Plans to address the financial difficulties and the build-up of unpaid rent caused by months of mandatory closures (such as Virgin Active's recent Restructuring Plan) have expressed difficulties in agreeing consensual arrangements with their landlords. It will be interesting to see whether the proposed framework in which landlords and tenants are expected to share the financial impact of rent arrears provides a workable alternative to dealing with the significant amount of unpaid rents still in the sector.
Read more about the current COVID-19 relief measures.
