Commercial Rent Arrears – A Way Forward for both Landlords and Tenants
By 25 March 2022 it is anticipated that the government will pass new legislation - The Commercial Rent (Coronavirus) Bill 2022, this will introduce a process for resolving outstanding commercial rent arrears for businesses affected with enforced closures during the lockdowns.
Added 22nd March, 2022
As the government’s current restrictions including those on forfeiture of Commercial leases and Commercial Rent Arrears Recovery (CRAR) will come to an end on 25 March 2022, the position for forfeiture and CRAR will revert back to what it was pre pandemic in most situations. Commercial Rent Arrears Recovery is a statutory procedure which allows landlords of commercial premises to recover rent arrears by taking control of the tenant's goods and selling them.
The Commercial Rent (Coronavirus) Bill 2022 (“the Bill”) allows an exception for pandemic arrears, the Bill is yet to receive royal assent but is expected to be enacted on or before 25 March 2022 coinciding with the current restrictions falling away. The Bill fundamentally alters the liabilities of commercial tenants for pandemic-linked rent arrears.
CODE OF PRACTICE
A new Code of Practice has also been published providing guidance on how parties should resolve disputes relating to rent arrears falling due during the Covid-19 pandemic. The New Code is advisory (unlike the Bill which is binding law), however the New Code will apply to all commercial rent arrears regardless of whether they have been subject to any Government Restrictions.
WHEN DOES THE ACT COVER?
This new law effectively ringfences arrears which fell due between 21 March 2020 and 19th July 2021 if during any of that period a tenant’s business was mandated to close their premises or cease trading as a result of restrictions imposed by the Government – referred to as “Protected Rent Debt”.
The period to which restrictions were imposed was dependent upon the nature of the business, for example Garden Centres were able to re-open as of 14 May 2020 therefore the Protected Rent Debt would be any rent arrears accrued between 21 March 2020 and 13 May 2020.
For Nightclubs this would include any rent arrears accrued between 21 March 2020 and 18 July 2021. These restrictions do not apply to any businesses that were not required to close by the Government which includes (but not limited to) takeaways, factories, offices, essential retail, etc.
The new measures do not apply to commercial rent arrears which had been incurred before 21st March 2020, or any that have been incurred post 18th July 2021.
The Bill also establishes a new binding arbitration process which the Government advises is aimed at “finding a proportionate solution which protects jobs, prevents further damage to the economy and enables a return to normal commercial relations”. Where the parties have not resolved disputes in relation to Protected Rent Debt, they will have a six-month window in which to refer the matter to the new arbitration scheme. Landlords will be unable to exercise their usual remedies in respect of Protected Rent Debt during this period and, if a referral is made, while the statutory arbitration is in progress. An arbitrator will decide how much of the Protected Rent Debt the tenant has to pay by reference to criteria set out in the new Code.
A copy of the Bill and the new Code can be found at https://www.gov.uk/government/publications/new-measures-in-bill-to-assist-commercial-landlords-and-tenants-in-resolving-rent-debts-resulting-from-the-covid-19-pandemic
If you require any assistance in respect of commercial rent arrears or advice relating to forfeiture then you can contact our Lydia Hamnett, partner in our Dispute Resolution Team on 01472 311711.
