Are new law changes enough to balance interests of landlords and tenants?

A series of new law changes have been introduced by the Government in an attempt to balance the interests of landlords and tenants in the wake of the coronavirus crisis.

The economic uncertainty of recent months has led to several challenges arising in the property industry and the Government has stepped in with new measures which expert lawyers say are needed but may not go far enough to balance and protect the interests of both landlords and tenants.

Reports of tenants being unable to, or failing to, pay their rents are widespread.  Reports of landlords facing difficulties with meeting their financial commitments are also growing.

Partner in Clarke Willmott’s property litigation team, Graham McIntyre, said: “New laws have been brought in to protect tenants who face cash flow issues and are having difficulty paying the March and June rent quarters.

These measures are time limited and seem to predict some significant resumption of trade in Q3 and Q4.

“The government is walking a tightrope between balancing the interests of landlords and tenants.

“From a tenant perspective there is, in many cases, undoubtedly a need for protection where income streams have slowed or possibly stopped, but fixed costs (such as rent) have not.

“But landlords have similar issues to face with rent collections for the June quarter having been at around 20% according to some surveys.  Our nation’s commercial landlords are made up from institutional investors, pension funds and private owners, many with personal indebtedness to fund their assets.”

Included in the latest announcements by the Government were several non-payment of rent enforcement options including:

• Restricting bailiff (CRAR) action against tenants to cases where the rent is more than 189 days overdue (extended from 90 days)
• A Landlord’s ability to forfeit for non-payment of rent has been delayed to 30 September 2020 (previously the moratorium extended to 30 June)
• The use of statutory demands and winding up petitions has been effectively banned until after 30 September 2020 unless the relevant [landlord] creditor can establish that COVID-19 has not had an effect on the relevant [tenant] debtor’s finances or the relevant debtor would be in the same position in any event.

“What is clear is that the current moratoriums cannot continue indefinitely,” continued Graham.

“That appears to be the driver behind the Code of Practice for the Commercial Property Sector published by the government on 19 June 2020. The core aim of the Code is to encourage commercial tenants and landlords to work together to protect viable businesses, with a core driver being to encourage openness between the parties about the financial situations they find themselves and to seek accommodations to allow both to operate through the difficulties.

“It is undoubtedly the case that there is a community of interest between landlords and tenants at this time if both wish to preserve their businesses through these choppy waters. However previous attempts to encourage a less adversarial approach to relations have not always been fully adopted.  Take the Lease Code for example – a wonderful idea both loved for its intentions and ignored when it does not meet with a party’s commercial interests.

“Perhaps the current crisis will be a sufficient shock to change the dynamic of the way business works.  Or perhaps further government intervention will be required to balance the interest of landlords and tenants more actively.”