The current moratorium on forfeiture for rent arrears ends on 25 March 2022 and the new Commercial Rent (Coronavirus) Act 2022 (the Act) will be introduced at the same time. From this date, landlords’ ability to forfeit a lease will depend on whether the arrears are protected rent debts.
Key points of the Act
The Act is designed to create a straightforward process to resolve disputes in relation to arrears accrued during the pandemic. Key points include:
— The Act applies only in relation to ‘protected rent debts’ (which can include rent, service charges, insurance rent) that fell due during the ‘protected period’ (between 21 March 2020 and 18 July 2021) but only where a tenant was forced to close its premises due to Government restrictions;
— Parties have 6 months from the 25 March 2022 to refer the dispute to arbitration failing which they lose their right to use the scheme; and
— The arbitrator can make whatever award they consider appropriate. This includes a full or partial write off of the arrears, agreeing a payment plan or no concession at all. When making an award, the arbitrator must consider the principles set out in the Code of Practice for Commercial Property Relationships.
What does this mean for you?
Although the introduction of the Act is a welcome step towards resolving these disputes, it raises questions such as:
— Does the Act apply to you?
— What do you need to do if the Act applies?
— What steps can you take to recover arrears if the Act does not apply?
— How to calculate a ‘protected rent debt’ and whether the ‘protected period’ applies.
— How to comply with the requirements and timeframe of the Act.
It is important to consider the nature of the tenants’ businesses and the periods during which there were restrictions in place for each type of business. If there were no restrictions landlords can use the usual remedies including forfeiture for non-payment. If you are considering forfeiture for ‘non-protected debts’ steps must be taken to avoid waiving the right to forfeit.
As a tenant, you should be aware that arbitration awards are likely to be published which could have unintended consequences for future lettings. Therefore, a mutual agreement with your landlord may be better than using the arbitration scheme.
Know your options and whether you can take advantage of the Act. If it does apply to you, you need to act fast!
Our Property Disputes team can advise both commercial landlords and tenants. If you want to discuss your position or strategy, please do get in touch.