The remaining restrictions on winding up petitions for the pursuit of unpaid commercial rent will be removed from 1 April 2022. The current 14-week irritancy notice period will expire on the same date.

James Fennessey, partner with Azets in Scotland and a specialist in commercial property, said that the removal of restrictions coupled with rising energy costs and supply chain issues will place further severe financial pressures on commercial tenants close to being insolvent.

“During the last two years, Covid debts were ring-fenced to encourage consensual repayment plans leaving landlords with little option but to agree rent reductions and deferrals and waive arrears to preserve long term income,” Mr Fennessey said.

“However, when these protections are removed in April, tenants and landlords will be forced to have difficult conversations that in many cases could result in the closure of a business.

“As a matter of priority, worried commercial tenants should review their balance sheets and undertake an urgent cash flow assessment to identify declining working capital, problems with paying employees or suppliers and pressure from creditors.

“We would encourage tenants to focus on effective working capital management, maintain open dialogue with landlords and prioritise any funding requirements arising from Covid debts. Tenants could also seek to refinance via debt or equity, providing breathing space and maximise the prospect of a turnaround.”

However, Mr Fennessey warned that commercial lenders are unlikely to fund a tenant struggling with a lack of liquidity, accrued debt including government loans and low borrowing capacity.

“This scenario will unfortunately force commercial tenants to consider an alternative lender with very high interest rates or equity finance on a distressed asset value basis, which will come with numerous prohibitive restrictions,” he said.

“Whilst the Covid loans, support packages and interventions staved off many business closures, their removal is now exposing businesses already under severe cash flow and working capital pressures. We would encourage any commercial tenant concerned with their financial position to seek advice as early as possible in order to maximise the prospects of securing the long-term survival of the business.”