The Commercial Rent (Coronavirus) Bill introduces a code of practice which aims to encourage commercial landlords and tenants to resolve rent arrears without resorting to arbitration.
The Bill, which covers protected rent arrears incurred by tenants during the pandemic, had its first reading in the House of Commons on 9 November 2021. It prohibits landlords from using any recovery method, including a court judgment, to recover protected rent arrears, other than arbitration. This is in addition to the existing moratorium, due to end on 25 March 2022, on forfeiture, commercial rent arrears recovery (CRAR) and winding up petitions.
What changes will be introduced by the Commercial Rent (Coronavirus) Bill?
The new legislation relates to protected rent arrears where:
- there is a business tenancy,
- the business or premises were required to fully or partially close under Coronavirus regulations, and
- the arrears relate to the ‘relevant period’ which is beginning at or after 2pm on 21 March 2020 and ending at or before 11:55pm on 18 July 2021 (in England) or 6am on 7 August 2021 (in Wales)
In the Bill, the protected arrears relate to rent, service charges, including repairs, maintenance, management costs and insurance, as well as interest on the unpaid amount.
The Commercial Rent (Coronavirus) Bill prevents a landlord who is owed a protected rent debt from using the following remedies to recover this debt during the moratorium period:
- Making a debt claim in civil proceedings
- Using the commercial rent arrears recovery power (CRAR) and the protected debt is to be disregarded when calculating the net unpaid rent for CRAR
- Giving notice of enforcement in relation to the protected debt
- Enforcing a right of re-entry or forfeiture
- Using a tenant’s deposit
Any debt claims for protected rent arrears, including court judgments or a bankruptcy petition based on a statutory demand, issued between 10 November and when the Act comes into force will be stayed.
Landlords will not be able to issue debt claims for these arrears until either the end of the arbitration application period or the arbitration process.
So, what options will be available to resolve commercial rent arrears?
The binding arbitration process is the only option available to tenants and landlords should direct discussions between the parties fail to produce an agreement. The arbitration body used must be approved by the Secretary of State and the arbitrator’s decision will be legally binding.
Either the tenant or the landlord may start the arbitration process, provided they do so within six months of the date when the Act is passed
It’s worth noting, however, that arbitration is not an option should the tenant be subject to a company voluntary arrangement, individual voluntary arrangement or a compromise or arrangement relating to any protected rent debt.
If the tenant defaults on the payments needed in the award, the arbitration award can be used as the basis for enforcement. The Bill has been drafted with the aim of enabling the landlord to enforce any default under the award by the tenant in the same way as a default on rent under the lease.
It will be for the landlord to decide what method of enforcement to use in respect of the default. However, one option would be to seek the leave of the court to enforce the award in the same manner as a judgment or order of the court (under section 66 of the Arbitration Act 1996).
Neil O’Brien, Parliamentary-Under Secretary for Levelling Up, the Union and Constitution said of the code, ‘where affordable, a tenant should aim to meet their obligations under their lease in full. It makes clear that the preservation of the tenant business’ viability should not come at the expense of the landlord’s solvency.’