Thirsk Winton LLP

Introduction of the “Commercial Rent (Coronavirus) Bill”

Over the course of the last year, commercial landlords have been encouraged to waive or write off some or all rent arrears incurred during periods where commercial tenants were affected by COVID-19 and were forced to close of their businesses during the various lockdowns ordered by the Government.

 

Gemma Leppard
Partner
gleppard@thirskwinton.co.uk

Currently commercial tenants are protected from eviction until 25 March 2022 following a moratorium on commercial evictions due to rent arrears introduced by the Government in 2020 (and subsequently further extended on several occasions). The ethos behind the moratorium was to provide commercial tenants with breathing space and to help protect jobs. One aim of the Government imposed moratorium was to encourage landlords and tenants negotiate and attempt to reach agreement on how to deal with accrued rent arrears.

On 9 November 2021 the Business Secretary (on behalf of the Department for Business Energy & industrial Strategy) and the Department for Levelling Up, Housing and Communities) announced that the Commercial Rent (Coronavirus) Bill was being introduced in Parliament and subject to Parliamentary passage, would come into force on 25 March 2022 across England and Wales. The Bill (alongside an updated Code of Practice) establishes a binding and mandatory arbitration process for commercial landlords and tenants where agreement on how to deal with rent arrears has not been reached by agreement.

The Bill will apply to commercial rent arrears accrued during periods of mandated closure of the tenant’s business during the pandemic, for example pubs, cafés, restaurants and gyms ordered to close by the Government. Arrears accrued at other times will not fall within the scope of the Bill. The Bill, if enacted, will “ringfence” COVID-19 related rent arears and establish a binding arbitration system for arrears that cannot be resolved by agreement.

Who will the Bill Apply to?

The Commercial Rent (Coronavirus) Bill applies to “Protected Rent Debt” where:

  • The tenant was mandated to close their premises or cease trading in whole or in part (it should be noted that the Bill does not cover businesses which were affected by COVID-19 and may have closed, but were not forced to do so by Government mandate)
  • The rent accrued during the “ringfenced” period. This period commences from 21 March 2020 and will then vary depending on when restrictions were imposed and lifted for various sectors. For example, restrictions for nightclubs were lifted on 18 July 2021 in England.
  • The lease is a business tenancy (as defined by Part II of the Landlord and Tenant Act 1954)

The Bill sets out that “Protected Rent Debt” applies to rent, service charges, insurance debt, VAT and interest. Arrears which fall outside the definition of “Protected Rent Debt” are not covered by the Bill and remain payable in full to the Landlord.

New Code of Practice

The new “Code of Practice for commercial property relationships following the COVID-19 pandemic” (https://www.gov.uk/government/publications/commercial-rents-code-of-practice-november-2021/code-of-practice-for-commercial-property-relationships-following-the-covid-19-pandemic#existing-forfeiture-and-recovery-restrictions) replaces the existing code (originally introduced in June 2020 and updated in April 2021) The aim of the Code of Practice is to assist with negotiating and resolving rent commercial rent disputes and remains a voluntary code for landlords and tenants to engage with.

Rent Debt Claims

The moratorium on forfeiture in respect of rent arrears and the restrictions on the use of CRAR regime (Commercial Rent Arrears Recovery regime) remain in place until 25 March 2022. Landlords who have not been able to reach agreement with tenants have utilised county court and high court claims to obtain judgment against tenants for rent arrears under the tenant’s lease. The Bill introduces a mechanism for parties to apply to stay rent claims issued after 10 November until after the Bill is introduced. It also prevents landlords from issuing rent debt claims for “ringfenced” arrears from 10 November until the end of the arbitration process (or the arbitration application period has passed- see below). Landlords are also prevented from petitioning for bankruptcy of a business tenant based on a statutory demand for a debt relating to “ringfenced” arrears served on or after 10 November 2021 and before the Bill comes into force. The Bill also bars landlords from drawing down on tenancy deposits to cover “ringfenced” arrears”.

The Arbitration Process introduced by the Commercial Rent (Coronavirus) Bill

The Bill provides for a legally binding arbitration process for commercial landlords and tenants who fall within the scope of the Bill and have not reached an agreement between them by negotiation (following the principles set out in the new Code of Practice). Such commercial landlords and tenants will be subject to the legally binding arbitration process. Either party may invoke the arbitration process unilaterally (parties are free to continue negotiations alongside) by first sending a letter of notification notifying the other party of their intention to apply for arbitration. The party receiving the letter of notification will then have 14 days to respond. The initiator will then have a further 14 days to reply (or must wait 28 days if no response is received at all to the letter of notification) before either party can proceed to apply for arbitration.
The window to apply for arbitration will be 6 months from the date the Bill comes into force. The maximum time frame to repay arrears will be 24 months.