The Commercial Rent (Coronavirus) Bill – what landlords and tenants need to know
It has been reported that commercial property landlords are owed more than £7 billion in rent arrears which was built up during the coronavirus pandemic. To resolve these extensive outstanding debts, the Commercial Rent (Coronavirus) Bill, is currently going through Parliament.
To spell out what this means for commercial landlords in the UK, here in our latest blog I want to detail the facts, what options are available, and answer the key questions which are circulating around the industry.
To give a brief overview, if passed through legislation the Bill, which is expected to become law in 2022, will continue to restrict landlords from recovering rent through most of the traditional methods - such as court proceedings and insolvency - but only if that rent was built up during certain periods of lockdowns or coronavirus restrictions, which prevented businesses from trading.
Instead of these more tried and trusted routes, the government will introduce a binding arbitration process which commercial landlords and tenants will have to follow if they cannot agree on the payment of outstanding rent.
What does this mean for landlords and tenants?
Landlords will find that rents falling due outside of lockdowns and restrictions will be payable in full, which will come as a relief.
Tenants can take comfort from the fact that the ringfenced arrears will have limited implications for now. The prospect of having to deal with a potentially costly arbitration process may also focus minds in negotiating an amicable outcome to any outstanding disputes.
However, the new legislation will add to the raft of hurdles and pitfalls which commercial landlords will need to navigate in order to recover the sums due to them. The outcome of the arbitration will also be wholly dependent on the viewpoint and competence of the appointed arbitrator.
How will arbitration work?
Once a dispute is referred to a government-authorised arbitrator, each party will have the opportunity to make their case and the appointed arbitrator will then determine the matter. His or her arbitration will be legally-binding.
Which rent arrears will be covered?
The new legislation will apply to “protected” rent, insurance, service charges and associated interest under a relevant business tenancy.
These sums will be classed as “protected” if some or all of the business carried out by the tenant, or the premises itself, were forced to close because of the lockdowns or other restrictions during the Covid-19 pandemic. An example might be a restaurant that was closed because of the lockdown or because it was in one of the higher “tiers” used to try to keep local cases of coronavirus down during the winter of 2020.
What periods do the rules cover?
It is proposed that the “protected period”, the dates covered by the new Bill, will in all cases begin on 21 March 2020, which is just after pubs and restaurants were ordered to close and two days before the first full government lockdown was introduced in response to Covid-19.
The period will end either:
a) on the date that the tenant’s business or the premises became free from Covid-19 restrictions or, if earlier;
b) a longstop date, being the last date before all remaining Covid-19 restrictions were lifted, which is 18 July 2021 for tenancies in England and 7 August 2021 for tenancies in Wales.
How long will these measures last?
It has been proposed that the tenant or landlord will be able to refer the matter to arbitration within 6 months from the day on which the legislation is created. It is expected that this will be in March 2022, so it is likely that the measures will last until September 2022 albeit this is yet to be confirmed.
Can the rent arrears be recovered in other ways?
Restrictions on the more traditional ways of recovering rent arrears, such as court proceedings or insolvency, will be retained and even widened.
A new measure will prevent a commercial landlord from making a debt claim while the existing moratorium on eviction continues. Up to now, there have been no restrictions on commercial landlords to issue proceedings to recover rent arrears.
If debt proceedings start before the legislation is passed, but after 10 November 2021, it is proposed that either party will be able to apply to the court for the proceedings on the debt claim to be stayed to allow for the arbitration to take place.
Insolvency limitations will also extend to bankruptcy petitions for non-corporate tenants, in addition to the current restrictions on winding-up petitions.
The legislation will also extend existing restrictions which prevent a commercial landlord from exercising Coronavirus Rent Arrears Recovery (CRAR), drawing down on the tenant deposit, commencing winding-up proceedings against a corporate tenant, and from forfeiting the lease during the time that this new legislation is in place.
To sum up, we have experts who specialise in both Commercial and Property Litigation and are therefore best-placed to provide you with tailored, commercial advice on the most pragmatic and cost-effective ways to resolve any disputes about outstanding rent arrears, and work with you to achieve a constructive and beneficial outcome.
If you require our assistance, please do not hesitate to contact Litigation Solicitor, Rachel Chambers.You can contact Rachel by email using firstname.lastname@example.org or by calling 01562 820181.