Unpaid SME rent arrears will impact local services

Unpaid SME rent arrears will impact local services.

There has been much discussion about the resumption of evictions from residential properties following a moratorium on landlords evicting people for non-payment of rent.

The ban also captured forfeiture and insolvency proceedings on landlords using Commercial Rent Arrears Recovery (CRAR). CRAR was introduced in 2014 and is a law that enables landlords to collect rent owed to them by a tenant by taking goods from their property.

The moratorium has been extended multiple times and the latest extension keeps the ban on collection until the end of June.

Some CIVEA members that specialise in CRAR have been unable to work since March 2020 and the impact on their business has been devastating. Despite, assurances from the government that firms collecting CRAR on behalf of local authorities would be taken into consideration when the evictions moratorium was reviewed, there has been little or no support on offer. Ironically, the government’s reason for suspending enforcement was to protect small businesses, and yet the small businesses that collect CRAR have been prevented by law from working and have received no protection.

The moratorium was designed to protect businesses that have been unable to trade due to the pandemic. Local authority landlords report that many indebted businesses have been trading throughout the pandemic but have paid no rent. They have not been in contact with any plans to pay, despite the Government stating they should pay if they can. CRAR would not affect firms that remained closed due to the pandemic because it can only be used where a business is open and trading.

Business tenants are aware that the only recourse for their landlord is the legal route, which is not viable because the courts have a backlog of hearing dates if a tenant contests the claim.

Enforcement firms that recover CRAR have had over a year of reduced income and their livelihoods are at stake. A small family firm that CIVEA represents will have lost 95% of its income as a result of the succession of extensions to the ban. Apart from furlough, the only assistance they have had is an initial £10,000 grant in April and £1,334 in December from the local council. The bounce-back loan will need to be repaid in September 2021 or interest will be incurred. Small family enforcement firms have not benefited from any of the sector-specific assistance which has been afforded to leisure and hospitality, despite being one of the only industries prohibited by law from working since the first lockdown last year. One of our smaller members has reported a huge loss in income from £500,000 to just £25,000 in the last year.

Another firm is at the point where its reserves, built up over nearly 27 years are almost completely exhausted. With the government’s constantly extended deadlines the company faced the choice of making the majority of its staff redundant before the moratorium was lifted or run the risk of not having enough funds to pay staff redundancy for the very long-serving employees.

It cannot be fair for businesses to operate without paying rent at a time when many commercial and public sector landlords are dependent on the revenue from CRAR.

Business sectors like leisure, retail and hospitality enjoyed significant funding from the government. But CIVEA members carried the costs of keeping staff on full salaries and the loss in turnover from the CRAR ban, which cannot be recovered and will be written off. CIVEA wrote repeatedly to the government about this crisis in our sector.

Belatedly, the Ministry of Housing, Communities and Local Government has launched a Call for Evidence on Covid-19 and commercial rents. The measures which are the subject of this call for evidence include the moratorium on commercial lease evictions established by s82 of the Coronavirus Act 2020; and the restrictions on the use of Commercial Rent Arrears Recovery (CRAR) established by the Taking Control of Goods (Amendment) (Coronavirus) Regulations 2021.

The argument that there will be high demand for enforcement firms once the current pandemic restrictions are lifted is only helpful if firms can keep going long enough. There is likely to be a shortage of specialist firms to recover commercial rent arrears when the ban is lifted, which will have knock-on effects for the local economy and council budgets.

It remains to be seen what the long-term impact will be. Small businesses that have operated for over a year rent-free at the expense of the taxpayer may yet suffer from the reduction in local council services on which they depend.