Great news for landlords and tenants – on 24 March 2022, the Commercial Rent (Coronavirus) Bill 2021-22 received Royal Assent.
The Act is intended to support landlords and tenants in resolving disputes around commercial rent arrears that built up while businesses were forced, by law, to close during the COVID-19 pandemic. The government’s intention is that, where possible, rent debt accrued as a result of the COVID-19 pandemic should not force an otherwise viable business to cease trading.
The Act ring fences certain rent arrears (“protected rent debts”) that built up as a result of business closures and introduces a new binding arbitration process to resolve disputes relating to those protected rent debts, where landlords and tenants have not been able to reach agreement.
Unpaid rent which includes service charge, insurance rent, VAT and interest is a protected rent debt if the tenancy was “adversely affected by Coronavirus.” A tenancy will be considered to be adversely affected by Coronavirus if the whole or part of the business was subject to a closure requirement during the period from 21 March 2020 and ending on or before 18 July 2021. The end date of the Protected Period will vary depending on when businesses in the relevant sectors were permitted to re-open again by law.
The Act will prevent legal action being taken in relation to protected rent debts for six months from 24 March 2022 (when this bill came into force) or, where the arbitration process has been instituted within that time, until after the arbitration process has concluded. During this 6 month period landlords will not be able to start any Commercial Rent Arrears Recovery (CRAR) process, issue debt claims, draw down on any rent deposit, forfeit the lease, or present a bankruptcy petition against an individual tenant. Landlords will also be prevented from drawing down on tenancy deposits to cover outstanding ringfenced rental arrears. Furthermore, Tenants are expected to specify which period of rent they are paying for when they make any rent payment, if an unspecified amount is or has been paid by the Tenant following the end of the ring-fenced period the Landlord must use this rent to cover rent outside the ring-fenced period first.
Where the landlord and tenant have not been able to reach agreement as to the payment of protected rent debts, the Act provides that either party may serve notice to the other of their intention to refer the matter to arbitration. The notice should include a proposal for settlement of the arrears. This might include debt write off, a repayment plan, or a combination of both. The responding party may make counterproposals. They have 14 days within which to respond, either by accepting the proposal or by making a counter-proposal with supporting evidence. If agreement cannot be achieved, the parties can then initiate the arbitration process. The application must show that the pre-application notification requirements of notice have been met (an application will not be accepted without this). An application must include a formal proposal, with supporting evidence, for resolving the unpaid protected rent debt.
Either the landlord or the tenant can make a referral to the scheme within this 6-month period. If neither party makes a referral during the 6-month period then, at the end of that period, the usual landlord remedies will become available so it is important you seek advice within this time period or you will lose your statutory right.
For landlords and tenants who cannot reach agreement for the repayment of COVID-related rent arrears, then the arbitration scheme introduced by this Act should be much welcomed. Please do contact us if you would like to discuss this new piece of legislation further.
This article highlights some of the key points. If you are looking for assistance in negotiating or exiting your lease, please get in touch with our team and we can explore the options which are available to you. Please contact the team at TP Legal on 01483 751878 if you would like specific legal advice in the light of the new regulations, and we will be happy to help.