Tenants and landlords were never likely to agree on how best to unwind the eviction moratorium. Now the government has published details of the 500-plus responses to its month-long consultation on the issue, which reveal just how far apart the two sides have found themselves over the past 18 months.
Many companies on both sides claim those on the other just aren’t listening. And with the British Property Federation estimating that £7.5bn of commercial rent was in arrears at the end of June, a resolution will affect the future of companies large and small. The vast majority of the 133 landlords responding to the consultation were small or medium-sized companies, and smaller businesses dominated the 306 responding tenants too, with about 77% classified as SMEs.
In June, the government confirmed that the eviction moratorium will be extended until next March. It will draft new legislation to support the resolution of rent arrears, ringfencing debt that has accumulated since March 2020 and introducing a “last resort” system of binding arbitration for landlords and tenants where negotiations have failed.
Alongside last week’s policy paper on the new legislation, the government has published the results of the consultation, which drew responses from tenants claiming to owe a collective £571.1m in backdated rent and landlords claiming to be owed £1.7bn.
The negotiators
The consultation gave a snapshot of how negotiations over rent arrears have progressed during the pandemic.
Landlords said on average that about 56% of tenants were engaging in the spirit of the code of practice. Most tenants (53%) said fewer than a fifth of landlords were. The report said a “significant” group of tenants claimed their landlords would not negotiate at all.
Where negotiations have taken place, the most common outcomes have been agreeing a longer timescale over which to pay arrears, cited by 39% of tenants and 62% of landlords; writing off some rent (33% of tenants and 54% of landlords); and reducing rent for some of the remainder of the lease (18% of tenants and 44% of landlords).
Several landlords said they had pursued asset management deals, reducing or waiving rent in return for the removal of break clauses in the lease or a lease extension.
Cracking the code
Respondents were split on whether the current moratorium has proved successful in encouraging negotiation or offered enough time to do so.
Most respondents – 61% – said the voluntary code of practice launched last year had been ineffective, although more than two-thirds were tenants compared to just 21% landlords.
Respondents argued that the voluntary nature of the current code means is it “easily ignored” and, according to some respondents, is “just delaying the inevitable”. A minority of 10% of respondents said the code had been effective, with several saying it had helped to encourage negotiations.
Many wanted the code to be made legally enforceable, with some arguing that both landlords and tenants should have to provide proof of their pre- and post-Covid trading situations during negotiations.
The government is now preparing to publish a revised code of practice to be put into legislation.
Clear dichotomy
The government’s decision to extend protection for tenants until March 2022 fell firmly in tenants’ favour.
Most of the landlords responding to the consultation – almost 90% – said their preferred option was to end tenant protection measures on the original date of 30 June. Two-thirds of the responding tenants said their most favoured option was a system of binding arbitration.
Across all respondents – which also included a smaller number of real estate lenders, agencies, lawyers and other interested parties – 57% were against letting measures expire on 30 June, with a third in favour.
“Recognising the clear dichotomy of views expressed by landlords and tenants, the government considered the options in the light of its original policy objective; to preserve viable tenant businesses and the millions of jobs that they support,” the consultation report said.
“This has led to the decision to bring forward legislation to ringfence rent debt accumulated during enforced closures and to set out a process of binding arbitration to be undertaken between landlords and tenants that are still unable to reach agreement on rent debt.”
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