Rent protections are ending. Here's what happens next

A variety of strategies can smooth the path back to normality
Henry Page

On 26 March 2022 the provisions of the Coronavirus Act 2020 Act preventing commercial landlords from evicting tenants and the use of the Commercial Rent Arrears Recovery (CRAR) will expire. From 1 April 2022 landlords will also regain the ability to issue winding up petitions against non-paying tenants. 

Since the early stages of the pandemic, businesses have benefitted from protections in the Act preventing landlords from issuing winding up petitions or seeking eviction. If on 1 April 2022 landlords regain their full enforcement powers tenants may find themselves subject to eviction or presented with demands and winding up petitions.

After nearly two years of the pandemic, tenants would only have themselves to blame if they had not entered into constructive dialogue with their landlords. Similarly, landlords should not see the end of the restrictions as a magic wand, following which historic or pandemic debt will be magically repaid. 

Instead, in most circumstances, a middle ground must be reached to prevent value destruction for all parties. Open honest conversations about the ability to pay must be met by landlords with pragmatism if recoveries are to maximised.

Landlords must be alive to the fact that businesses are not returning to ‘business as usual’ on 26 March 2022. The world has changed, not least through Brexit which will only truly come into focus post pandemic, and along with challenges including supply chain issues, inflation (and future interest rate rises), staff recruitment, proposed NICs increases, pension contributions, and changes in consumer taste and confidence, are just some of the factors that are facing businesses as we move through 2022. 

The above doesn’t include the repayment of pandemic debts, business bounce back loans (BBLs), and deferred PAYE and VAT, all of which are now having to be scheduled into forecasts and put a further squeeze on often already tight margins. Landlord flexibility and inventiveness, such as moving to turnover rents, and the ability to act commercially in relation to the repayment of historic debt, will be needed to avoid a formal insolvency process. 

However, in certain circumstances the protection and breathing space afforded by a CVA (Company Voluntary Arrangement) or trading administration, the realisation of value through a pre-pack administration, or the use of new CIGA insolvency tools such as the Court led Restructuring Plan, can be a constructive way out of financial distress.

Insolvency processes by their very nature are likely to crystallise a loss to some creditors, however they should also allow the best outcome from a financially distressed position for stakeholders which may include the preservation of jobs, an ongoing trading business, and providing the best available return to creditors. HMRC, who have been elevated to preferential status within insolvency proceedings, will have a significant say in the success of any of these proposals, and a direct impact on the return to landlords from any negotiations. 

So what to do now? 

Neither landlords nor tenants can afford to ignore the coming expiry of protections. 

Tenants should have forecasts for the coming 12 months with the ability to flex expectations. Forecasts must be prudent but realistic so as not to alienate landlords or other creditors with who you are negotiating and include the repayment of the pandemic debt. Time to Pay arrangements are available with HMRC and the T&Cs of BBLs may allow for payment breaks in specific circumstances with an expectation that banks won’t be trigger happy enforcing repayment for genuine, viable, businesses. 

Directors must however remember their duties and the potential risks of continuing to trade while insolvent, which may result in personal liability for increasing debts and being disqualified. They should also consider the ongoing basis of their remuneration if they have traditionally relied on a dividend policy which may be subsequently clawed back. 

Unless forecasts show a reasonable basis for trading out of financial stress, directors should be seeking advice from an Insolvency Practitioner or solicitor on how they continue to act. Getting advice early will afford businesses more options when it comes to identifying and implementing constructive solutions. Leaving any advice until 26 March 2022 will directly impact the businesses ability to overcome external threats.  

Henry Page is a Partner in the Corporate Restructuring team at accountants Mercer & Hole. He can be reached by email: henry.page@mercerhole.co.uk

Written by
Henry Page
Mercer & Hole
February 2, 2022