New laws introduced to resolve COVID rent debts

Commercial tenants have been protected against eviction due to non-payment of rent since April 2020. Originally due to end in September that same year, the moratorium has been extended several times and is now set to end on 25 March 2022.

With the majority of COVID-19 restrictions now removed and economic recovery proceeding at a faster pace than originally anticipated, the government has introduced new legislation and a Code of Practice to resolve any commercial rent disputes that remain after the 25 March deadline.

How are commercial tenants protected?

Before we get into the details of the new legislation, let’s quickly recap the situation so far.

Since April 2020, businesses have been protected from eviction and lease forfeiture as a result of a tenant’s failure to pay their rent. This means that landlords have still been able to forfeit leases and/or repossess their properties for other reasons – for example, breach of other terms of the lease such as illegal subletting.

Landlords are also currently unable to use the Commercial Rent Arrears Recovery (CRAR) process, unless the rent arrears amount to at least 554 days’ rent.

A ban on presenting winding-up petitions to commercial tenants due to unpaid rent (unless the landlord has good reason to believe that coronavirus has not had a financial impact on the tenant’s business) has also been in place since April 2020; this is set to be lifted on 31 March 2022.

In addition, the government is introducing protection for commercial tenants against debt claims, including County Court Judgments, High Court Judgments and bankruptcy petitions.

The Commercial Rent (Coronavirus) Bill

So, what will the new legislation, first introduced to Parliament on 9 November in the form of the Commercial Rent (Coronavirus) Bill, bring to the table?

Essentially, the law will introduce a ringfence for rent debt accrued as a result of the coronavirus pandemic, and establish a legally binding arbitration process for landlords and tenants who have not yet arrived at a mutual agreement on how to resolve the ringfenced debt. This process will apply to all businesses mandated to close during the pandemic and will enable either the landlord or the tenant to apply for arbitration unilaterally. Businesses will be able to apply for arbitration up to six months following the introduction of the legislation on 25 March 2022 (subject to successful passage through Parliament), with a maximum repayment window of 24 months.

The process will be delivered by approved private arbitrators, with a list to be published by the Department for Business, Energy and Industrial Strategy in due course.

A new Code of Practice released

This Bill has been accompanied by a new code of practice, which provides landlords and tenants with a clear process for settling outstanding debt before the legislation comes into force. Replacing the voluntary ‘Code of practice for commercial property relationships’, first published on 19 June 2020, the new code aims to provide best practice guidelines to landlords and tenants to help them successfully negotiate rent arrears, without resorting to arbitration.

As with the previous code of practice, the emphasis remains very much on collaboration between both parties, who are expected to do everything they reasonably can to come to a mutually satisfactory agreement. This means that businesses are expected to continue paying rent if they are able to do so, while landlords are expected to show flexibility or even waive some of the debt if this is a viable option.

Positively, it looks like the government’s guidelines have been observed in most commercial rent disputes; the British Property Federation says that agreement has been reached in nearly 80% of rent arrear cases since the start of the pandemic.

Comprehensive dispute resolution advice

At Woodfines, we pride ourselves on our ability to resolve disputes by negotiation before they reach the court system. However, we know this is not always possible. Therefore, we are committed to supporting businesses through the arbitration process to achieve the best possible outcome. For more information, please contact us on 0344 967 2505 or email us at DebtRecovery@woodfines.co.uk

– Claire Spencer 

 

 

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