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In May this year, many retailers felt unable to pay their rent liabilities and grouped together with the British Retail Consortium (BRC) to lobby housing secretary Robert Jenrick for an extension. Although most parties had agreed to a settlement, around one fifth of retailers had outstanding arrears. These retailers argued that they needed more time in order to trade their way out of debt.
If the rent payments cannot be agreed, the UK may face a ‘tsunami’ of court cases when the moratorium expires and landlords are able to evict and place wind-up petitions on their tenants. One risk of enforcing tenant payments is that they may become insolvent. If so, it is likely landlords will not receive any of the money owed to them.
This is where mediation comes in.
The government has proposed that the parties should reach an agreement prior to end of 2021, otherwise they will be subject to a legally binding arbitration award. Commercial landlords have been encouraged to waive ‘some or all’ rent arrears where possible.
One of the advantages of using mediation first is that it can act in the best interests of both parties: here both commercial landlords have lost out on their rent payments, and commercial tenants have struggled to find income throughout the pandemic.
Mediation should endeavour to provide a win-win solution to what has been a lose-lose scenario. It is not in the landlord’s best interest for the tenant to go bust and many industry analysts have promoted a ‘share the pain’ approach.
The government is currently introducing a new Commercial Rent (Coronavirus) Bill, which will come into effect next year and will establish the legally bringing arbitration process for any ongoing disputes. However, the Business secretary Kwasi Kwarteng has encouraged commercial landlords and tenants to work together and devise their own solution in the meantime.
Talking points:
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