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What does the Commercial Rent (Coronavirus) Bill mean for commercial landlords?

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What does the Commercial Rent (Coronavirus) Bill mean for commercial landlords?

Landlords of business premises have had a tough time during the Coronavirus pandemic. If their tenants are not paying rent, there has been little that landlords can do as the Government imposed a moratorium on commercial landlords evicting tenants and preventing the forfeiture of business leases. Various other restrictions also prevented landlords from seizing goods in lieu of rent, and business tenants in arrears were protected from insolvency proceedings by their landlord. The moratorium of forfeiture of business leases under section 82 of the Coronavirus Act 2020 and restrictions on the use of CRAR will end on 25 March 2022. Restrictions on the use of winding up petitions are due to end on 31 March 2022. However, it will not all be plain sailing from then on and is not designed to extend a blank cheque for tenants who continue to withhold rent.

The Government has recognised that its previous Code of Conduct did not work, largely because of the voluntary nature of the Code. So they have now introduced the Commercial Rent (Coronavirus) Bill set to receive Royal Assent probably before 25 March 2022.

The Bill sets out a new arbitration process for commercial landlords and tenants to agree the repayment of rents which were not paid and fell due during periods when businesses were forced to close in 2020 and 2021. Helen Porter, Partner in our Commercial Litigation and Dispute Resolution team, reviews the details of the Bill here, explaining the key information that is pertinent to landlords and our recommendations for the future.

Who are most affected by the Bill?

Essentially, the Bill protects or ‘ringfences’ certain debt that has arisen during the pandemic and seeks to implement a new binding arbitration regime to balance the interests between landlord and tenant.
It provides for a “protected rent debt” which is a rent debt which has accrued for the following businesses:
o Those who were adversely affected by coronavirus and mandated to close their business or premises, either in whole or in part, under the Covid-19 regulations as detailed under the Public Health (Control of Disease) Act 1984; and
o Those who lease their premises under a business tenancy as defined by Part II of the Landlord and Tenant Act 1954 which applies to the vast majority of business tenancies.
For those businesses that were not forced to close (e.g. pharmacies), they fall outside the scope of the Bill and, after 25 March 2022, Landlords will once again have various tools available to them with which to enforce payment.

“Protected Rent Debt” also includes services charges, insurance premiums and other sums payable to the landlord, which were not paid by tenants during the “protected period” from 21 March 2020 and ends on the last day on which the business was subject to the specified closure on or before 18 July 2021, latest. The end date will have varied for each business depending on their sector.

Landlords are not to draw down from rent deposits to cover ring-fenced rent arrears.

For those protected rents, the Bill introduces a new mandatory arbitration process intended to find a solution which suits both landlord and tenant while also protecting jobs and the future commercial relationship. If arbitration is sought, landlords, and tenants will have six months from the date the Bill is passed to apply with a maximum of 24 months to make payments that are mandated under the arbitrators rule, known as a “relief from payment”.

What relief could the arbitrator grant?

Details of who will be appointed as the arbitrator have still not been disclosed, but could be an individual or a panel. The parties will not be able to choose their arbitrator, who will be appointed by an arbitration body. Should private negotiations fail between a landlord and tenant and one party wishes to enter into arbitration proceedings, the Bill sets out a timetable for the process leading up to the notification of the award, usually within 14 days of a hearing.

As part of its deliberations, the arbitrator must confirm that the outstanding debt is indeed a protected rent debt that can be ring-fenced under the Bill. The arbitrator is obliged to choose the option that is most likely to not only preserve the tenant’s business but also the landlord’s solvency. These options could include:
- The debt is to be written off, either in full or in part.
- The tenant is to be granted a reasonable amount of time to pay off the debt, either in full or in part.
- The payment is to be made in instalments (within 24 months of the date of the award).
- The reduction of any interest that would be payable on the debt.

The arbitrator must publish the award and the reasons for it.

For those who are successful in the arbitration process, those ring-fenced debts cannot be included in a CVA or restructuring process for a period of 12 months after the arbitration award.

How much will it cost?

There is a fee payable in advance by the person making the reference to arbitration. The arbitrator can require the other party to pay half of that fee when making the award. Neither party will be able to recover their costs from the other party in the arbitration or under the terms of the Lease.


“This is a new regime and details of how the arbitration system will work are still to be disclosed” explains Helen. “Until a body of case law has been built, there could easily be disagreements regarding the arbitrator’s ruling on the viability of a business (a new concept), the preservation of the landlord’s solvency, and any underlying contractual rights. While this does provide further clarity for landlords, and some reassurance as to the periods that rent arrears can now be claimed for, it does also mean a further possible delay in payments that could be damaging their own solvency. We would encourage all landlords to initially discuss their situation with their tenants and attempt to reach an agreement without the need to resort to arbitration proceedings under this new Bill.”

To discuss your current situation between you and your commercial tenant or for advice on how to proceed, you can contact Helen Porter in the Commercial Litigation and Dispute Resolution team on 023 8071 7425 or email helenporter@warnergoodman.co.uk

 

 

 

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