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Call for evidence on commercial rents reviewed

17th September 2021

The Government issued a call for evidence concerning commercial rent and relations between commercial landlords and tenants between the 6th of April and the 4th of May 2021.

The Government recently released their findings after careful analysis of evidence received from 508 respondents.

Whilst the two main respondents (86% of the total respondents) were commercial landlords and tenants, anybody relating to the industry was able to submit evidence.

Profile of respondents to the call for evidence:

There were 306 responses to the call for evidence who identified as commercial tenants and 133 respondents who identified as direct investors, landlords or commercial property owners.

Others comprised of representative organisations including the CTA (13 respondents), surveyors/agents (13 respondents); legal (12 respondents); property managers (6 respondents); debt enforcement (5 respondents); and mediation / alternative dispute resolution (1 respondent).

Tenant size:
Size Respondents (number) Employees (number) Annual turnover (Total, £ millions)
Small 192 2,675 £229.0
Medium 39 3,995 £271.2
Large 70 650,593 £81,079.9
Total 301 657,263 £81,580.2
Tenant industry:

call for evidence industry type graph

Tenant and landlord location (in England):

call for evidence location graph

Sentiment regarding the Code of Practice for commercial property relationships:

  • The majority of tenants (52.9%) believed that between 0-20% of landlords were engaging in the spirit of the code of practice.
  • On average, landlords stated that 56.5% of tenants were engaging in the spirit of the code of practice.
  • The analysis also noted that, on average, the ‘Other’ respondents felt that only 46.5% of landlords were engaging, whereas as few as 41.5% of tenants were.
  • A significant group of tenants stated that they had also commonly experienced landlords refusing to negotiate.
  • The majority (61%) of all respondents either disagreed or strongly disagreed that the current code of practice is effective.

Outcomes of negotiations:

Respondents to the call for evidence highlighted that the majority of these outcomes were an agreement of longer duration to pay arrears (experienced by 39.2% of tenants and 61.7% of landlords), an agreement to write-off of an agreed amount of rent arrears (experienced by 33.3% of tenants and 54.1% of landlords) and a reduced rent for a proportion of the remainder of the lease (experienced by 18% of tenants and 44.4% of landlords).

However, more tenants (54.9%) had not been able to agree any concessions than those that had been able to (42.2%).

The sectors given the most concessions were as follows: Retail, Hospitality and Leisure granted by 71.4%, 66.2% and 45.9% of landlords respectively.

Repayment of rent arrears:

  • 46.7% of tenants said they will not be able to repay their rent arrears.
  • 27.8% stated they were unsure if they would be able to repay their rent arrears.
  • 22.2% stated they would be able to repay their rent arrears.

The most common reasons for not being able to repay rent arrears was a lack of income and that the built-up debt was too great.

  • 39.8% of landlords did not expect tenants to be able to repay their rent arrears.
  • 33.1% of landlords did expect tenants to be able to repay their rent arrears.

Options proposed for going forwards:

  • Option 1 – allowing the current tenant protection measures to expire
  • Option 2 – allow the moratorium on commercial lease forfeiture to lapse but retain the insolvency measures and restrictions on the use of CRAR
  • Option 3 – targeting existing measures to businesses based on the impact that Covid restrictions have had on their businesses
  • Option 4 – encourage increased formal mediation between landlords and tenants
  • Option 5 – non-binding arbitration
  • Option 6 – binding arbitration

Most preferred and least preferred options:

Respondents to the call for evidence were asked to rank the options for in order of their preference.

Most preferred options

call for evidence preferred options

Least preferred options

call for evidence least preferred options

The outcome:

Commercial tenants will be protected by the eviction moratorium extension, and the corresponding restriction on the use of CRAR to settle rent disputes, through until the 25th March 2022.

However, the restriction on the use of winding-up proceedings will expire at the end of September.

In the meantime, the call for evidence helped inform the government that option six would be the most appropriate course of action of the options they put forwards.

Binding arbitration will be used to settle pandemic rent debt disputes.

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