Introduction of the “Commercial Rent (Coronavirus) Bill”

by Admin | Jan 19, 2023 | Litigation

fence” COVID-19 related rent arrears 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 “ring fenced” 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 “ring fenced” 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 “ring fenced” 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.

Written by Gemma Leppard

The tax benefits of ownership of property by onshore or offshore residents through
an overseas company have not only been removed but such companies are now more
heavily taxed.
Overseas companies must also now register at the UK Companies House as an
overseas entity disclosing information on a public register about beneficial owners or
managing officers. These rules also apply where the beneficial owner is a trustee of a
trust.

Now that companies are caught by tax rules relating to ATED (Annual Tax on
Enveloped Dwellings) which affects properties valued at as little as £500,000,
Corporation Tax currently at the rate of 25% and potentially Inheritance Tax, most
owners of offshore companies will wish to transfer their property out of the company
structure, usually into individual names or a trust. This can offer an opportunity for
some inheritance tax planning usually by making a lifetime transfer of the property
to family members.

The good news is that SDLT (stamp duty land tax) will be exempt in most cases
provided that the correct procedures are followed.
It is advisable to take tax advice on the range of potential taxes that can arise from
de-enveloping a property.

3 people from a company planning the sale of their business with a solicitor from thirsk winton

HOW TO DE-ENVELOPE

There are usually two ways of proceeding:

1. Pass a company resolution and transfer the property to the shareholders or their nominees by way of a distribution in specie (in kind). This will be exempt from stamp duty land tax (SDLT) provided that it is a voluntary transfer for no ‘chargeable consideration’.
2. Pass a resolution to put the company into voluntary liquidation and carry out a distribution in specie.
The second way will be the more costly since there will be the costs of the liquidator to take into account.

The articles of association must be checked to ensure that a distribution in specie is permitted. If not, the articles can be amended by passing a special resolution. The resolution must be carefully worded if exemption from SDLT is to be claimed. It should not be worded as a cash value dividend equal to the market value of the property to be settled by a transfer of assets.

In order to avoid having to pay SDLT, there should be no third party debt or mortgages over the property. The directors will need to check that the company has sufficient assets to make the distribution and there are no outstanding creditors other than any debt that may be owed to the shareholders themselves.

For overseas companies, a legal opinion may be required from lawyers practising in the jurisdiction as to the legality of the actions being taken in order to satisfy the requirements of the Land Registry.

Our expert solicitors will be pleased to advise and guide you through your transaction. Please contact Alan Zeffertt if you would like assistance:

E: azeffertt@thirskwinton.co.uk

T: 020 7043 1621

M: 07968 190951

Disclaimer: The information in this article is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.

About Us

Hi, we’re Thirsk Winton LLP and we offer a range of client focused, bespoke legal services to commercial and private clients with a strong focus on niche areas including leasehold enfranchisement, dispute resolution and international notarial services.