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The Commercial Rent (Coronavirus) Bill - introduction of a binding arbitration scheme

View profile for Craig Walker
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The Government on 9 November 2021 published the Commercial Rent (Coronavirus) Bill together with an updated Code of Practice with the aim of resolving commercial rent arrears that accrued during the COVID-19 pandemic.  The Bill if enacted, will “ringfence” certain Covid related rent arrears and make them subject to a statutory binding arbitration scheme.  

The Arbitration Scheme

The arbitration scheme sets out a framework for the resolution of COVID related rent arrears where such arrears were accumulated by businesses that were legally forced to close or cease trading because of the pandemic.  To qualify, the lease must be a business tenancy as defined by Part II of the Landlord and Tenant Act 1954 and the rent accrued must be during the relevant “ringfenced period” for that particular business i.e. the period between 21 March 2020 and no later than 18 July 2021 (referred to as “protected rent debt”).  The Bill emphasises that the arbitration scheme should be used as a last resort when parties have exhausted expected negotiations under the revised Code of Practice.

It is important to note that under the scheme, the arbitrator is first required to determine whether the tenant’s business is a viable one, or would be viable if the tenant was given relief from paying back the protected rent debt. If the business is not viable, the reference to arbitration will be dismissed.

Restrictions on Landlord Enforcement

The Bill is expected to come into force on 25 March 2022. Until such time the existing restrictions on landlords enforcing their rights in relation to rent arrears will remain (i.e. the forfeiture moratorium, restrictions on the use of the Commercial Rent Arrears Recovery regime and restrictions on winding up petitions). The Bill also introduces a new restriction on any debt claims for protected rent debts issued in the County Court or High Court from 10 November 2021, which is intended to have retrospective effect and which will then fall within the scope of the arbitration scheme.

Commentary

It remains to be seen what changes if any will be made to the Bill before it becomes law and indeed how the scheme will operate in practice. One would assume, for example, that there will be further lobbying from the hospitality and leisure sector that the ring-fenced periods should extend beyond just the periods that businesses were required to close by law, so as to allow for a reasonable ‘mobilisation’ period. However, it does on the face of it represent a radical new scheme which will potentially give rise to binding awards that will not only drive a coach and horses through a tenant’s contractual rent obligations, but will also provide some much needed light at the end of a long tunnel for commercial landlords. 

Goodman Derrick – Real Estate Dispute Resolution

Our Real Estate Dispute Resolution team has a wealth of experience in both the commercial and residential property sectors, the group:

  • Ensures that problems are resolved in the most cost effective way and at the earliest stage
  • Advise commercial clients on every type of landlord and tenant dispute in relation to both freehold and leasehold property
  • Clients include nationwide retail chains, property developers, investors and managers of substantial portfolios
  • Routinely assist with resolving disputes including concerning service charges, covenants, boundary disputes, and forfeiture

More information

This article is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author, Craig Walker. 

The article was written with assistance from Forida Khatun, Trainee Solicitor.