Service: Business strategy 

Sector: Hospitality Property Retail 

Topic: Coronavirus 

Rent arrears - a looming crisis for landlords and tenants

By Richard Kleiner

28 May 2021

It’s estimated that more than £6 billion in rent arrears has accumulated since March 2020, leaving both landlords and tenants struggling. 

Throughout the Covid-19 pandemic, the UK government has built in additional protections for tenants to ensure they did not lose their home or business space due to restrictions imposed during a public health crisis. This was covered through guidance for landlords and tenants in March 2020 in the Coronavirus Act 2020, emergency legislation that has been updated several times since. 

But more than a year later, the financial impact to both landlords and tenants is starting to be more understood. 

“The issue of rent arrears has been a looming cliff edge for the duration of the pandemic,” according to a report by Parliament’s Housing Communities and Local Government Committee. In the first quarter of 2021, only one-fifth of commercial rent has been paid, according to the Financial Times, which also estimates that more than £6 billion is already seriously overdue. And a poll for the debt charity StepChange found that half of private renters had experienced a loss of income since the start of the pandemic, with 460,000 households in rent arrears as of January 2021.

As the government’s roadmap progresses and the country moves out of lockdowns, the hope is that the situation will start to improve. But the huge shortfall in rent paid has affected both landlords and tenants significantly, with landlords struggling to balance their books and tenants facing significant debts. And as businesses continue to struggle due to both Brexit and the Covid crisis, it could take longer than hoped for arrears to be paid.

In order to find a way forward, the government recently reached out to groups representing both landlords and tenants to ascertain the best options to deal with the impasse, which includes looking at potential changes to landlord's and tenant's rights and responsibilities. 

It is hoped the government will soon bring out new guidance, including a possible update to the Landlords and Tenants Act, to help deal with the issue of rent arrears, and will provide additional financial assistance to both landlords and tenants. However, even in the best-case scenario, the government is extremely unlikely to cover the entire cost of the shortfall. 

One of the main challenges relating to the whole issue of rent arrears is what the alternatives are, especially once the restrictions following the Coronavirus Act are lifted. While it will soon be possible to arrange for evictions, and where necessary, bailiff convictions for rent arrears, few landlords want to go down this road, preferring to come to an agreement with existing tenants - and with good reason.

In the current climate, it could be very difficult for landlords to find new tenants who are prepared to take on a property at the same rent level as the existing tenant. And tenants who are currently in rent arrears may struggle to get any new landlords to take them on. 

One option to consider could be an agreement between landlord and tenant to extend the length of the existing lease to spread the cost of the rent arrears over a longer period. Other options include restructuring finances or adapting premises for alternative or shared uses with the existing tenant. 

The good news is that both landlord and tenant are more likely to agree to the most mutually beneficial plan if there’s the likelihood of a long-term relationship, so assuming a solution can be found will result in the current tenant remaining in situ as this would probably be the best solution for both parties. 

To find out how Gerald Edelman can help with your landlord or tenant issues, contact us today. 

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