Commercial Rent Arrears and the Commercial Rent (Coronavirus) Bill

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1 December 2021

It is clear to anyone in business that the road to post coronavirus normality is going to be anything but straightforward. Not only do we need to look to a new future, but we also have to rebuild from the wreckage of what has happened. Part of this is the resolution of commercial rent arrears. This brings us to the Commercial Rent (Coronavirus) Bill and its accompanying code of practice which is currently being considered by parliament. The Government hopes that the bill will be enacted prior to 25 March 2022.

Since the first lockdown, there have been severe restrictions on actions that can be taken in respect of arrears that have arisen, for example, where businesses were ordered to close to the public. These are arrears that arose between May 2020 and July 2021, the ringfenced period. They are described for the purposes of the bill, as protected rent debts.

The proposed effect will be to stay any proceedings brought after 10 November 2021. Such claims will be managed under a new and binding arbitration scheme. The bill stipulates that parties will be encouraged to try and resolve any issues by negotiation or refer them to arbitration. This is with a view to either cancellation of the debt, reduction of interest or fixing instalment payments. There will be a window of 6 months from the Act coming into force to refer matters to arbitration. During this period landlords will be unable to pursue other forms of action.

The provisions sit behind a new code of practice which landlords and tenants will be expected to follow including openness and collaboration, reasonableness and swift resolution.

The bill also provides that reference to arbitration must include proposals for resolution. The following factors will be taken into account –

  • Any business seeking a reference to arbitration must demonstrate that it is viable and will be viable if relief is granted. This is some comfort to landlords who can have some assurance that rents will be paid going forwards,
  • The arbitrator will consider the assets and liabilities of the parties, previous rental payments, the impact of coronavirus on the tenant’s business any other relevant financial information,

The process is said to be underpinned by the key principles of viability and affordability.

The arbitration will be held in public at a hearing lasting up to 6 hours if this is requested. Otherwise, the matter will be dealt with as a paper exercise. Fees will be fixed by the government, presumably by reference to the sums at stake.

It is clear that the intention of the bill is to protect the viability of businesses where appropriate and to reduce the potential burden on the courts.

The impact will be to restrict actions that can be taken by landlords. Where they are faced with a protected debt, they will be unable to take action through the courts, nor will they be able to bring winding up actions or seek to recover arrears via tenants’ deposits.

In one sense there are no winners here. Tenants are still recovering from the nightmare of forced closure from many have struggled to recover. Landlords have suffered the inevitable impact of lost rental income. The new legislation will at least provide some certainty enabling all parties to plan for the future.

© Melissa Worth December 2021

The Dispute Adviser

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