For those landlords or tenants still locked in disputes over unpaid commercial rent arrears built up during the COVID-19 lockdowns, a way forward is in sight in the form of the Commercial Rent (Coronavirus) Bill. Due to be passed as statute in March 2022, the bill proposes a binding statutory arbitration process to deal with outstanding arrears in place of usual landlord remedies, such as commercial rent arrears recovery, in order to bring outstanding disputes to a swift conclusion.
The Bill intends to ring-fence any sums due under commercial leases as ‘rent’, so that could now include service charges, insurance premiums and interest. This would cover the period from 21 March 2020 up to the date when opening restrictions were removed for the relevant sector (such as 12 April 2021 for non-essential retail), with an end date of 18 July 2021. Only these sums will be subject to the planned arbitration scheme. It appears that sums due under licences, tenancies at will and leases for 6 months or less (among others) will not be covered in the bill.
Landlords may be aware that their usual remedies to deal with unpaid commercial rent have been restricted since March 2020. After the bill is passed, a moratorium will put these remedies on hold whilst arbitration is in process or the 6-month application period for arbitration remains open, but only regarding certain rent arrears. A landlord’s usual remedies will remain available in certain cases, such as rent arrears incurred before or after the relevant period, or for those business which were not forced to close plus any interest charged on rent arrears incurred after the relevant period, if permitted by the lease.
Landlords will be pleased to know that following the passage of the bill they will regain their usual rights in respect of rent arrears incurred after 18 July 2021 or before 21 March 2020. Any rents during the relevant period that have already been paid will not be reviewed under the arbitration process.
A new code of practice for commercial property relations following the pandemic will supplement the bill. It will provide guidance on how negotiations on rent arrears accrued during the pandemic should be approached as well as the proposed statutory arbitration process.
Generally, the code provides that where tenants can pay their rent arrears in full, they should do so. If they cannot, the code provides that landlords and tenants must negotiate the sums due, with the expectation that a landlord will have to bear part of the cost of the rent arrears. Where negotiations fail, either a landlord or tenant can refer the dispute to statutory arbitration within 6 months of the date the bill becomes law. An arbitrator will then make a binding award which may write off all or part of the debt, give the tenant extra time (up to 2 years) to pay the whole or part of it including by instalments, or to reduce any interest payable on the debt. The awards will seemingly be enforceable and capable of being appealed in the same way as any other award by arbitration. However, like much of the provisions of the bill, these are not yet certain. More details should become clear over the next 2 months, but those landlords or tenants with ongoing disputes over historic arrears should take note and be prepared to take legal advice over what will be an important and timely piece of legislation.
Tenants who have been fighting their landlord over outstanding sums are set to benefit greatly from the arbitration process and should be looking to submit an application to arbitration within the 6-month period after the date of the bill. After this a landlord would have full reign to exercise their statutory remedies to recover the ring-fenced rent.
If you think you may be affected by the bill and would like any assistance on this or your options in general regarding rent arrears, please call 01256 320555 or email email@example.com to speak to our commercial property team.