The Government proposes to introduce new legislation setting out a binding arbitration process between landlords and tenants to deal with rent arrears accrued during the pandemic.
Landlord and tenant specialist, James Holton, DTM Legal summarises the proposed measures and how best landlords, tenants and their advisors should proceed.
What do Landlords and Tenants Need to Know?
The proposed measures include the following:
- Landlords and tenants first will be expected to negotiate with each other first, with arbitration as a last resort.
- The arbitrator will be able to make a costs order if a party is found to have acted in bad faith.
- The existing date for the lifting of the restriction on forfeiture for rent arrears (currently 25 March 2022) may be brought forward at short notice.
- Once these proposals become law, the current moratorium on forfeiture will only apply to arrears which accrued where the tenant’s ability to trade was affected by lockdown restrictions.
- Landlords will be able to forfeit a lease where the tenant is in arrears but continued to trade during the pandemic.
- Landlords will continue to be able to evict a tenant for breaches of covenant other than rent arrears (such as unlawfully sub-letting premises).
What does this mean?
We are finding that landlords are already factoring these proposals into their strategies where rent is in arrears.
There have been recent cases where landlords have successfully obtained judgments for rent arrears. We anticipate an increase in rent arrears claims brought by landlords before the arbitration scheme becomes binding.
Where there are pandemic-related arrears, tenants should confirm in writing to their landlord how any payments of rent should be apportioned.
What Can Landlords Do?
Landlords can still take action to enforce a tenant’s obligations including the following:
- Issuing a money claim for rent arrears before the arbitration scheme takes effect (including against any guarantor).
- Service of a Section 146 Notice where there are breaches of the lease other than rent arrears.
- Drawing down a rent deposit.
- Re-gearing the lease (such as removing a break option or extending the term) in exchange for waiving rent arrears.
DTM Legal LLP
Our specialist landlord and tenant team are supporting clients and their professional advisors in the successful management of their portfolios including the recovery of rent and service charge arrears, plus the renewal and termination of leases.