Update: The Commercial Rent Arrears Crisis: what can landlords do?
12 November 2021 by Emily Wickington
As mentioned in our previous blog (The Commercial Rent Arrears Crisis: What can Landlords do?) the government have introduced a new binding arbitration scheme to deal specifically with the ring-fenced debt of commercial rent arrears. This is now to be in the form of the Commercial Rent (Coronavirus) Bill (The ‘Bill’) which was introduced in Parliament on 9 November 2021, and is currently undergoing the 2nd reading in the House of Commons. Alongside this a revised Code of practice for commercial property relationships following the Covid-19 pandemic was published.
This Bill will create a binding arbitration regime in respect of the commercial rent arrears caused by Covid-19 business closures, and the government have confirmed that the moratorium measures will continue until the Bill has become law. The government are still aiming for this to be in place before March 2022.
What is the Government Policy?
- If Tenants are able to pay their rent debt in full whilst maintaining business viability they should do so. This is regardless of whether or not they were forced to close during the pandemic.
- Those Tenants who are unable to pay in full should firstly negotiate with their Landlord, for which the revised Code of practice provides a framework for the negotiations. The expectation is that the landlord will ‘share the burden’ with the Tenant through the act of waiving some or all rent arrears where they are in a position to do so.
- If the Landlord and Tenant are still unable to reach an agreement, then either party may seek to access the new arbitration regime which will be introduced by the Commercial Rent (Coronavirus) Bill. This will apply for any ‘protected rent debts’ which are within the scope of the Bill.
What do we know currently about the Arbitration Regime?
- It will apply to rent arrears under business tenancies in respect of periods where (i) the business or the premises were forced to close, cease trading or restrict trading due to the pandemic, (ii) the Tenant can provide evidence that it is viable but not to the extent that it can afford to pay such rent arrears, and (iii) as mentioned above the Landlord and Tenant have been unable to reach an agreement between themselves.
- Any other debts accrued at any other times will fall outside the scope of this regime.
- Whilst statutory arbitration is in progress, the other remedies available to Landlords will temporarily be unavailable. Therefore, Landlords will be unable to present:
- Winding-up petitions for the ‘protected rent debt’ during the moratorium period for statutory arbitration to take place; nor
- Bankruptcy petitions against individuals for ‘protected rent debt’ where the statutory demand relied upon was served (or, if an unsatisfied judgment is relied on, the claim was issued) on or after 10 November 2021.
- Any bankruptcy order in respect of ‘protected rent debt’ which is made on or after 10 November 2021 but prior to the Bill coming into force will be effectively void.
- It limits subsequent restructuring for Tenants, if they have entered the arbitration regime then they must not include the ring-fenced rent debt in any restructuring plans or schemes, including CVAs, for a period of 12 months from when the arbitration settlement is awarded.
Process and Impact
- It is presumed to be a document-only process, although the parties may request a formal hearing.
- The arbitrator’s decision will be based on evidence and will take into account a multitude of factors.
- This is hoped to deal with the significant rent debt which still remains unresolved, and should only be used as a ‘last resort’.
- The arbitration regime will not be applicable to Tenants who, even with a full write-off of rent arrears debt, are not viable.
As mentioned above this is currently going through the Parliamentary process and so is subject to change over the next few months.
If you are a landlord, and would require some guidance relating to your options for pursuing a commercial tenant for non-payment of rents, please do get in touch with our commercial property team on 01206 835316 or email [email protected]
What happens when a dentist wishes to sell their practice but the lease is due to expire? Leah Groves explains opt… https://t.co/mPGwLm93PP1 week
This week marks Mental Health Awareness Week. It can be scarily easy to fall into the trap of your own mind when ba… https://t.co/KIC8JZQh6F1 week