Article written by Sarah-Kate Jackson, Partner and Head of Litigation
The Commercial Rent (Coronavirus) Bill is currently working its way through Parliament and is intended to become law on or before 25 March 2022.
Billions of pounds worth of commercial rent arrears are thought to have built up during the pandemic. On 9 November 2021, the Government published a revised Code of Practice for commercial property relationships.
The draft Commercial Rent Bill creates the concept of a ‘protected rent debt’. This means that any arrears accrued during periods of closure due to COVID-19, including consequential restrictions on the use of premises after re-opening, will be ring-fenced. This protected period begins on 21 March 2020 and ends on or before 18 July 2021, depending on the specific Coronavirus restrictions that apply to the business sector in question.
Currently, there are several restrictions on landlords to prevent them taking action to recover commercial rent arrears and these restrictions are due to remain in place until March 2022. The Bill proposes a temporary moratorium prohibiting the following methods of recovering ‘protected rent debts’:
- Exercising commercial rent arrears recovery
- Forfeiture for non-payment of ‘protected rent debt’
- Drawing down on a rent deposit deed
- Presentation of a winding-up petition against a tenant company
- Presentation of a bankruptcy petition against an individual tenant where a statutory demand was served on or after 10 November 2021.
Although the Bill has yet to come into force, certain provisions will apply retrospectively. In particular, any debt proceedings for the recovery of a ‘protected rent debt’ commenced from 10 November 2021 to the date on which the Bill is passed will be automatically stayed by the courts on the application of either the landlord or the tenant.
Referring to an arbitrator
Instead of using the methods listed above, landlords and tenants will have six months from the date on which the legislation becomes law to refer their dispute over the ‘protected rent debt’ to an arbitrator. In determining the appropriate level of rent relief, the arbitrator will work through a two-stage process. Firstly, they will determine whether the tenant’s business is viable or could be if rent relief were granted. If the viability test is passed, the arbitrator will move on to consider both parties’ proposals before reaching a decision which aims to preserve both the viability of the tenant’s business and the landlord’s solvency.
The Bill makes it clear that none of the provisions within it are intended to have an impact upon existing rent relief arrangements or concessions made between landlords and tenants. It does not, however, define what constitutes such an agreement, which may lead to disputes between parties where informal arrangements are not documented.
As the Bill is currently drafted, landlords are likely to be able to take steps to recover any rent which fell due outside of the protected period when the legislation comes into force. The Government is keen for parties to reach a workable compromise in respect of rent arrears and, where this is not possible, to have the matter determined by arbitration. It remains to be seen whether the proposals will provide an effective mechanism for resolving these disputes.