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Commercial Rent (Coronavirus) Bill update

The Commercial Rent (Coronavirus) Bill (“the Bill”) introduced by the government in November 2021 continues to protect commercial tenants by ringfencing the rent and service charge arrears accumulated as a result of the pandemic where premises were required to close or operate with limited capacity.  The Bill aims to resolve the backlog of commercial rent arrears that fell due during this period. The moratorium, which prevents landlords from taking enforcement action for overdue rents, forfeiture and winding up petitions will end on 25 March 2022, meaning that the backlog of rent arrears will have to be addressed.   

The Bill has not come into force yet, but it is likely that it will become law following the lifting of the moratorium on 25 March 2022.  It is accompanied by a Code of Practice for commercial property relationships (“the Code”) and introduces a binding arbitration scheme to determine the amount payable by tenants or even write-off all or part of the arrears.  We consider below the arbitration procedure, its potential problems and other options available to landlords and tenants before the Bill comes into force, so that you can act now to protect your position.

The arbitration procedure

1.       The arbitration scheme will be available to both landlords and tenants that have been unable to reach agreement on “protected rent debts” that fell due during the “protected period”.  The “protected rent debt” is limited to rents that fell due between 21 March 2020 and 18 July 2021 in England or 7 August 2021 in Wales (the protected period) and during which the whole or part of the business or premises were required to close or were subject to restrictions following the coronavirus regulations.  The Bill does not appear to allow for more than one “protected period” which for many businesses is likely to end earlier – on 12 April 2021 when some were allowed to re-open.

2.       Parties only have a 6-month window in which to refer the matter to the new arbitration scheme.  At this moment it is unknown whether this period will be extended by regulations.  If neither party refers to the matter within this period, the opportunity will have passed, and the landlord can seek to enforce all the usual remedies.

3.       Once the matter has been referred to arbitration, landlords will be unable to take any action in respect of protected rent debts during this period, or whilst the arbitration process is in progress.   The Bill also introduces a moratorium, preventing forfeiture, winding-up petitions, the use of commercial rent arrears recover (CRAR) and bringing debt claims to recover protected rent debts.  It is important to note that debt claims can still be issued now before the Bill comes into force, but once the Bill is passed the proceedings are stayed if they were commenced on or after 10 November 2021.

4.       Arbitration cannot be used where the tenant is subject to a company voluntary arrangement, individual voluntary arrangement or an arrangement or compromise under the Companies Act 2006.  Tenants whose businesses are not viable and would not be viable even if they were given any form of relief from payment cannot use the arbitration scheme either.

The arbitrator will make an award as soon as reasonably practicable having regard to the following principles:

1.  Preserving or restoring the viability of the tenant’s business, so far as is consistent with preserving the landlord’s solvency; and

2.  The tenant should pay in full, so far this is consistent with preserving the viability of its business.

Problems with the Bill

1.  The scheme seems to favour mainly the retail and hospitality sectors that have been badly affected and do not apply to other businesses who may have chosen to close their offices for other Covid related issues, or “work from home” in order to comply with government guidance.

2.  Situations where landlords and tenants were able to reach some sort of compromise or agreement fall outside the scope of the Bill and are not bound by the arbitration process. The word “agreement” is not currently defined in the Bill which could lead to disputes between parties who verbally or informally reached an agreement.

3.  The Bill only applies to “business tenancies”, meaning tenancies to which Part 2 of the Landlord and Tenant Act 1954 applies.  Thus other types of tenancies or licences may not be covered.

4.   There are several tight deadlines that the parties are required to meet in addition to the 6-month time limit for commencing the arbitration process, which could possibly lead to urgent satellite litigation just to get something started.

5.  In light of these uncertainties, landlords and tenants may be advised to pursue other options as detailed below.

Other options

1.  Negotiation: Arbitrations are unpredictable and can be expensive, which is why the Code strongly encourages landlords and tenants to attempt negotiation. Landlords may wish to act quickly to agree on a solution with their tenants, to avoid falling within the arbitration scheme, but tenants who can demonstrate the viability of their business may prefer to wait in order to take advantage of the potential reduction available through the scheme.

2.   Debt claims: such claims can be issued prior to the Bill coming into force. However, once the Bill becomes law, either party can apply for a stay of the proceedings (given that they have been issued on or after 10 November 2021) in order to allow the matter to be referred to arbitration. It is important to note that the stays will only apply to protected-rent debt claims and there is currently nothing preventing the landlord from pursuing overdue commercial rent falling due now or drawing down on rent deposits for non-protected rent.

Know your options and where you currently stand – our Property Disputes team can advise both commercial landlords and tenants and our General Disputes team has immense experience in arbitrations.  If you require assistance, please do get in touch.

This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: mailinglists@greenwoods.co.uk




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      By completing and submitting this form, you consent to Greenwoods Legal LLP processing your personal data to provide you with the email update services you have selected and any other materials and information about our services that Greenwoods Legal LLP reasonably believes will be of interest to you. You are free to withdraw your consent at any time by emailing mailinglists@greenwoods.co.uk