Insights

Andrew Robins

Published 3 March 2022
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The Commercial Rent (Coronavirus) Bill

And relief for commercial rent arrears

It’s perhaps no surprise that following the pandemic and mandatory closure of many businesses, there are currently an estimated £7 to 9 billion of commercial rent arrears. As a result, the Government’s Commercial Rent (Coronavirus) Bill proposes a solution to this challenge. The Bill is currently at the Report Stage in the House of Lords and is expected to be passed later in March.  The Bill is also accompanied by a new Code of Practice in respect of commercial property relationships.

A summary of the Commercial Rent (Coronavirus) Bill

The long title of the bill explains its purpose of providing relief “from payment of certain rent debts under business tenancies adversely affected by coronavirus to be available through arbitration”. In other words, landlords will not be able to use the usual remedies (forfeiture, CRAR, debt claims, winding up or bankruptcy petitions) in respect of rent arrears that arose during the period when businesses were forced to close. Instead, landlords and tenants will have six months from the date on which the Act comes into force to refer the matter for determination by an arbitrator.

Which business and tenancies will be eligible?

The provisions will apply to all business tenancies as defined in the Landlord and Tenant Act 1954 (including those leases which have been contracted out of the 1954 Act). However, this means licences, tenancies at will, agricultural holdings, tenancies of less than six months and other types of lease are not included within the relief.

What arrears does the Bill apply to?

The relief applies to almost all sums due under a lease, including rent, service charge, insurance rent, interest and any amount drawn down from a rent deposit. However, the tenancy must have been adversely affected by coronavirus, i.e., the tenancy must have been affected by mandatory closure orders.  The provisions will not have any impact on existing rent concession or rent relief arrangements made between landlords and tenants.

The draft Bill also provides that any protected rent debt that has been referred to arbitration may not be included in any restructuring (such as a CVA scheme) for a period of 12 months after the conclusion of the arbitration process. 

What period will the provisions apply to?

The protection period is from 21 March 2020 until the last date restrictions were removed from the tenant’s business sector (but will not take account of periods when a business was able to open partially or subject to restrictions). 

The legislation will also apply to any debt proceedings for the recovery of protected rent arrears taken against the debtor between 10 November 2021 and the date on which the Act comes into force.  Any such proceedings will be subject to an automatic stay of proceedings on the application of either the landlord or tenant. Landlords will also not be able to bring a bankruptcy petition against individual tenants in respect of the relevant rent arrears and any such bankruptcy order made on or after 10 November 2021 will be treated as void.

The arbitration process

Either party can refer the matter to arbitration. Both sides must then make proposals for payment, supported by evidence. The arbitrator must approach the matter on the basis that tenants should pay the full amount owing without delay. However, the arbitrator must then make an award based on the one hand, on whether the tenant’s business is viable (or could be made viable if granted relief) and the other hand, based on the solvency of the landlord.

The question of viability, therefore, is likely to be the main focus and the arbitrator will be able to take into account historic payments and the assets and liabilities of the parties. If the tenant is unable to satisfy the arbitrator that its business is or could be viable, the application will automatically fail.

Conclusion

The impact of the legislation is of course that there is in effect an immediate embargo on any new claims in respect of commercial rent arrears arising from the protected period. 

As with any new legislation, it is yet to be seen how the provisions will play out, but they have already attracted much criticism for lack of guidance as to how the arbitration scheme will work in practice. It may not be clear, for example, whether or not the parties have already reached a rent relief agreement (thereby excluding themselves from the provisions) and caution may be required if the tenant is considering restructuring. What’s more, it’s clear that in more complex cases, arbitrators will need significant skills and understanding in order to assess the viability of the tenant’s business.  We, therefore, expect to hear a great deal more about the application of these provisions in due course.

If you think you may be affected by anything raised herein, please get in touch.

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