The fears were of a “bloodbath” on the nation’s high streets. During the pandemic, the UK government put in place protection to stop landlords evicting commercial tenants like restaurants, shops, bars or pubs that had been forced to close and had accrued rent arrears.
That mountain of unpaid rental debt — which Remit Consulting puts at a cumulative £8bn — has been slowly chipped away as landlords and tenants have struck deals to write off chunks of what’s owed. No one knows on what terms these private deals have been struck. And no one really has the foggiest how much of the rental shortfall is left unaddressed.
On current evidence, the answer is a lot less than anyone thought.
The moratorium on commercial evictions lifted in March, with the passing of legislation covering rent arrears. This re-established normal landlord-tenant relations, save for ringfenced debt related to periods where businesses were forced to close. Those unable to reach agreement on that debt have six months, until September 24, to take advantage of a legally-binding arbitration process.
The expectation was that there would be a flood of applications to the seven designated arbitration bodies from anxious tenants seeking help in dealing with rapacious and unreasonable landlords. The government initially expected about 7500 cases in England and Wales to end up in arbitration. By the time the scheme came into being that estimate had been cut to 2800, according to a business minister who (like pretty much everyone else) is no longer in the job.
How are things looking now? Well, virtually non-existent. None of the arbitration bodies that responded to my questions had broken into double figures in terms of their confirmed cases. One had had zero formal applications as of late June, and only a handful of inquiries, before breaking its duck in July. Based on the information received and market chatter, it’s hard to see how the total number of cases lodged at the seven arbitrators is higher than 50, and certainly must be well short of 100.
No one really is sure why. One theory is that tenants remain in denial about the imminent end to protection from these debts — or are simply unaware of the scheme. In a survey by UKHospitality, the industry body, only 2 per cent of respondents said they intended to use the scheme, with a fifth still considering it. But Kate Nicholls, chief executive, says she’s comfortable that the market isn’t suffering a “mass lack of awareness”.
Another theory is that parties are still trying to understand the scheme and do the necessary work before submitting their case. There are various hoops to jump through and experts argue that hitting the deadline requires starting work several weeks in advance. Lisa Barge, head of real estate dispute resolution at Eversheds Sutherland, says that neither landlords or tenants have been quick to use the scheme but expects “we will see a rush in August.”
It would have to be one heck of a holiday-ruining stampede to get anywhere close to the predictions for demand. The reality may be that this was a genuine problem but one that was always poorly quantified and ill-understood. Even at the height of concerns, parties on all sides said most cases could eventually be settled through negotiation. Moratorium protection encouraged concessions from landlords. Its phased withdrawal helped establish who was and was not an otherwise viable tenant, one of the arbitration scheme’s requirements.
You can pick according to your prejudice. One interpretation is that the low uptake suggests that arbitration was an unnecessary piece of state meddling, where the normal back-and-forth of market negotiations would have worked just fine.
Another (and my personal bias) is that the very presence of a legally-binding arbitration mechanism has prompted both landlords and tenants to play, if not nicely, then somewhat constructively. A quiet summer should be chalked up as a policy success — not that anyone in Westminster is likely to notice