Is the end of the pandemic in sight for commercial property?
Much has changed since our last update on the effects of the Coronavirus on Commercial property written on 26 June 2020, with new legalisation aiming to set an end date for the pandemic’s effects on Commercial Property. The Commercial Rent (Coronavirus) Bill (the ‘Bill’) aims to set conditions for relief, pending arbitration under a designated scheme, for certain rent arrears for tenancies who were adversely affected by the pandemic..
What payments does the Bill cover?
The definition of “rent” in the Bill extends to any amount payable for use of the premises whether or not described as rent, service charge, insurance, interest, VAT and also includes drawing down a rent deposit.
When will certain rent arrears be ‘protected’?
Under the Bill certain rent arrears will be ‘protected’ if the following requirements are met:
1) the tenant was adversely affected by the pandemic and mandated to close its business;
2) the lease is a business tenancy; and
3) the rent arrears were accrued during the protected period, starting from the 21 March 2020 and ending with the removal of the relevant restriction on the business effected or the 18 July 2021.
If these three aspects are satisfied, the rent arrears will be ‘protected’ and the landlord will be subject to a temporary moratorium and be unable to issue debt claims in relation to those arrears.
What restrictions are imposed on ‘protected rent’ payments?
The temporary moratorium prohibits the following enforcement methods being brought by landlords for the non-payment of rent:
1. Issuing court proceedings to recover a debt
2. Using the commercial rent arrears recovery power
3. Enforcing a right of re-entry or forfeiture
4. Drawing down on a tenant’s rent deposit
5. Presentation of a winding-up petition against a business tenant
6. Presentation of a bankruptcy petition against an individual tenant
The temporary moratorium will apply until the conclusion of arbitration, or if no reference to arbitration is made, 6 months after the Bill is passed.
The arbitration scheme
During the temporary moratorium a landlord or tenant may refer a dispute of protected rent to the arbitration scheme. The Bill outlines the process for arbitration and requirements for the parties to refer dispute to arbitration.
Certain steps must be taken by the parties before making a reference to the arbitration scheme, these include:
1. The tenant or landlord must notify the other (‘the respondent’) of their intention to make a reference to arbitration;
2. The respondent may within 14 days of notification, provide a response;
3. A reference to arbitration cannot be made before:
a. The end of the period of 14 days after the day on which the respondent’s response is received; or
b. If no response is received, the end of the period of 28 days beginning on the day on which notification is served.
Furthermore any reference to arbitration must include a formal proposal for resolving the matter of relief from payment of a protected rent debt. The respondent is also given a chance to put forward a formal proposal in response. Once formal proposals are submitted each party may put forward a revised proposal within 28 days or receiving a formal proposal.
Lastly, the arbitrator must make an award as soon as reasonably practicable after both parties have put forward a final proposal or the last day on which last revised proposal was received. If an oral hearing is required, then an award will be made within 14 days of the conclusion of the oral hearing.
What about rent arrears falling due before 20 March 2020 or after 18 July 2021?
The Bill does not currently apply to any arrears accrued before 20 March 2020 or after 18 July 2021. Therefore, a landlord may issue debt proceedings for any arrears outside the scope of the Bill.
When is the Bill due to take effect?
The Bill is currently in its 3rd reading in the House of Lords but it is anticipated it will be passed by the end of March 2022.
Resolving adversely affected rent arrears
The end goal of the Bill is to bring all of the adversely affected rent arrears, which cannot be resolved by agreement between the landlord and tenant, under the ambit of the arbitration process laid out in the Bill.
This is undoubtedly a ‘tenant friendly’ and business orientated piece of legislation, which sets its lofty goal of dealing with all protected rent arrears in a way that does not adversely affect the tenant, promotes businesses viability going forward, whilst ‘wiping the slate clean’ of the effects of the Coronavirus on tenancies.
This area of law has already received significant government intervention, with the already existing ban on rent arrears-based forfeiture, something that has effect until 25 March 2022, with this Bill being aimed at the ‘next step’ in rebuilding business to its pre-pandemic level. The effects of the Bill are intended to stay in place for six months following the Bill becoming law.
If you would like to speak to our Debt Recovery team you can contact them on 01228 552222 and firstname.lastname@example.org