The government may have lifted the remaining COVID-19 legal restrictions for citizens but there are many commercial tenants and landlords who will be dealing with fallout from the pandemic for a while yet to come, says Stephanie Whitchurch, a Partner at Tallents Solicitors.
During the pandemic, the government protected commercial tenants with a series of restrictions on landlords, including preventing forfeiture of leases on grounds of rent arrears and restricting the use of commercial rent arrears recovery (CRAR) for commercial rent debts.
The current restrictions are due to expire on 25 March 2022 and are intended to be replaced with new measures that have been set out in the Commercial Rent (Coronavirus) Bill (the Bill) and revised Code of Practice for Commercial Property Relationships (the Code). The Bill is expected to come in to force to replace the previous measures in place. This will enable landlords to proceed with forfeiture, CRAR and county court proceedings in respect of rent arrears, unless they are ringfenced under the Bill.
The Bill sets out a new arbitration process which is intended to come in to force on 25 March 2022. This will apply to “protected rent debts” (rent, service charge, interest and VAT) of businesses who were required to close during the pandemic and which arose during the “protected period”, i.e. the period that they were subject to restrictions.
For the six month period after the Bill comes in to force, landlords and tenants may refer protected rent debts to a binding arbitration scheme. An arbitrator will be able to determine whether the tenant should be given relief from payment which can include writing off all or part of the protected rent debt, giving time to pay (up to 24 months) and/or reducing interest. The arbitrator will consider the viability of the tenant’s business, (which should not be at the expense of the solvency of the landlord) and affordability and will need to consider the respective financial positions of the parties. In practice, as notices need to be given in advance of the referral to arbitration, the process will need to be commenced at least five months after the Bill comes in to force.
For the six month period after the Bill is passed (or until the conclusion of arbitration is a referral is made), landlords will be restricted from taking enforcement steps as the Bill prohibits forfeiture, CRAR, court proceedings, presenting a winding up or bankruptcy petition or drawing down on a rent deposit in relation to a protected rent debt during this period.
The Code encourages landlords and tenants to try and negotiate prior to a referral to arbitration.
At present, we are still waiting for the Bill to be enacted but Landlords or Tenants wishing to discuss a strategy for outstanding rent arrears are encouraged to speak to Stephanie and arrange an appointment on 01636 671881.