Call for evidence on commercial rents: responses and analysis
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The government will be introducing a binding arbitration process that will be put in place between landlords and tenants. This will be a formal legally binding agreement that both parties must adhere to. So what are the options that the government will be considering following the consultation period?
Government Option 1 – allowing the current tenant protection measures to expire
The majority of respondents (57.3%) were against letting measures expire, whilst a significant group (33.7%) were in favour of letting measures expire. The vast majority (89.7%) of those against letting measures expire were tenants. This equates to 85.3% of all tenants. On the other hand, the majority of those in favour (69.6%) were landlords. This equates to 89.5% of all landlords.
Government Option 2 – allow the moratorium on commercial lease forfeiture to lapse but retain the insolvency measures and restrictions on the use of CRAR
The majority (61.81%) of respondents were not in favour of this option. 60% of these respondents were tenants whereas only 28.6% were landlords. This equates to the majority of both tenants (62.1%) and landlords (67.7%) being against this option.
A significant group of tenants were against this option as they felt it would give landlords an unfair amount of power. An alternative group, mostly tenants, also suggested it would harm their business. Several respondents felt that this option would just delay the inevitable, rather than actually create change.
A small group of respondents (18.9%) were in favour of this option. These respondents were split fairly evenly between landlords and tenants. A limited subgroup suggested that this would encourage landlords to engage, and others felt it would provide tenants some protection.
The most commonly expected outcome of this option was rent arrears to be demanded in full (49.8%). Other commonly expected outcomes included tenant eviction procedures and closure of premises. The predominant reason provided for these expected outcomes was the option still enabling the refusal to negotiate.
The majority of respondents (62.2%) felt that this option would either reduce or cease trade. A large majority of these were tenants (74.7%). The main reasons being business closures and reduced income if businesses were to survive. However, a limited subgroup did feel that option would lead to the resolution of conflict and in turn enable trade.
The majority of those (55.1%) who responded to this question suggested this option would result in reduced employment or completely cease employment. Alternatively, a significant group of respondents felt that this option would have no impact on employment.
When asked specifically how many jobs would be gained or lost, the totals were as follows: 88 jobs gained, 7,208 jobs lost (Net –7,120).
Many respondents felt that this option would decrease their ability to invest in the future. A large majority of these were tenants (74.5%). The reasons for this included a lack of income, decreased certainty and having to focus on paying off debts before investing. Small groups felt that it would have increase their ability or no impact. Many respondents also felt this option would decrease their ability to contribute to government priorities, with very few suggesting it would increase their ability.
Government Option 3 – targeting existing measures to businesses based on the impact that Covid restrictions have had on their businesses
The majority of respondents felt that both capacity or trading restrictions (63.4%) and full closure (60.8%) should be considered. Many also suggested that any restrictions that resulted in a loss of business should be considered.
Government Option 4 – encourage increased formal mediation between landlords and tenants
Marginally more (43.1%) respondents were against this option than for it (40.2%). Out of those not in favour, 47% were tenants and 39% were landlords. It is worth noting that this equates to the majority of landlords (64.7%).
Out of those in favour, 74.5% were tenants and only 14.7% were landlords. This equates to 49.7% of all tenants. There was no clear consensus as to why people were in favour of this option.
Government Option 5 – non-binding arbitration
The majority (51.2%) of respondents were not in support of non-binding adjudication. The predominant opinion expressed by respondents not in favour of this option was that it needs to be binding in order to ensure its effectiveness. Alterative groups felt that that this option was unnecessary and that it would be costly and/or timely. Roughly a quarter of respondents (25.2%) were favour of non-binding adjudication. A large majority of these were tenants (80.5%).
The most common expected outcomes of non-binding adjudication were negotiation on rent arrears amount owed (39.8%), negotiation on rent arrears duration to pay and rent arrears demanded in full.
Government Option 6 – binding arbitration
49.2% of respondents were in favour of binding adjudication, whilst only 27.36% were actively against it. The vast majority of those in favour were tenants (81.2%). This equates to 66.3% of all tenants. The predominant reason for supporting binding adjudication was simply because it forces negotiations. Other key reasons for those in favour were the belief that it would help stop the abuse of power in negotiations as well as the framework provided by binding adjudication bringing clarity.
The majority (63.3%) of those against were landlords. This equates to 66.2% of all landlords. The predominant reason respondents were against binding adjudication was the belief it would be costly, time consuming and/or management intensive.
There was no clear consensus to the other options that should be considered. The main opinion expressed in the responses was a desire for the government to force negotiations, and therefore it was requested that the government bring in some legislation that forces negotiations. Another significant group of respondents requested a change to a turnover based lease model (often referred to the Australian model). Another smaller group of respondents requested the use of sector specific measures.
For more information, please visit the Government website here.