At last! Light at the end of the tunnel or more frustration for commercial landlords and tenants in disputes over Covid related rent arrears?

The Government has today published the Commercial Rent (Coronavirus) Bill (the “Bill”), and in doing so has provided a significant update on how it envisages resolution to disputes over commercial rent arrears incurred during the Coronavirus pandemic. The news will be of great interest to all landlords and tenants with an interest in commercial premises, and is of particular importance to those in the hospitality and retail sectors.

Previous measures

Landlords have, since March 2020, been subject to a moratorium preventing them from evicting commercial tenants for non-payment of rent. This moratorium is in place until 25 March 2022. The aim of this was to protect businesses forced to partially or fully close during the pandemic.

Furthermore, a voluntary Code of Practice was published in June 2020 to encourage commercial tenants and landlords to work together to protect viable businesses.

The Bill at a glance

The announcement today provides some answers on how settlement may be reached in respect of commercial rents which were unpaid, wholly or in part, during the Covid related lockdowns of the previous two years.

The Bill will provide the following:

• The Bill potentially enables relief from payment of certain rent debts, with resolution to be achieved by arbitration (if not already resolved by a separate agreement).
• The Bill applies to “protected rent” under a business tenancy which was “adversely affected by Coronavirus” during the “protected period”.
• Such debts are potentially subject to “relief from payment”, which may involve:
  • writing off the whole or part of the debt;
  • giving further time to pay the whole or part of the debt, including allowing payment by instalments; or
  • reducing or writing off interest due under the terms of the tenancy in relation to the whole or part of the debt.
• Arbitration will be carried out by arbitrators maintained on a list by one or more “approved arbitration bodies”, which will be selected by the Secretary of State.
• Either party has six months to make a formal reference to arbitration beginning from when the Act is eventually passed by Parliament.
• References to arbitration will be subject to formalities such as serving notice, making proposals for resolving the matter and making statements of truth.

Implications

The aim of the scheme is to settle as many ongoing commercial rent arrears disputes out of court as possible to prevent the court system being inundated with rent arrears claims after March 2022 and to provide a basis for landlords and tenants to resolve any rent arrears claims in a pragmatic and fair way, allowing them to continue their relationship and minimising disruption to the wider economy.

Any existing agreements between landlords and tenants in respect of rent arrears will continue. However, for landlords and tenants who have yet to conclude disputes on this matter, this update may be seen as a glimmer of hope to finally reach a resolution and draw a line under their challenges as experienced during the past 2 years of Covid.

Many remaining questions

The Bill will now be scrutinised by Parliament and legal analysts and interested parties alike.  While it offers a possible vision of how the Government sees rent arrears disputes being resolved, there are many practical questions which have already arisen.  For example, there are currently a huge amount of rent arrears and yet surprisingly, there is no confirmation as to exactly who will carry out the arbitration (and whether we have enough qualified arbitrators to determine the potential number of outstanding cases), how much this will all cost and who will fund and staff the scheme and for how long? The great unknown is on whose side arbitrators’ decisions will generally fall.

As with any new legal procedure, approaching these disputes and making reference to arbitration is a potential minefield for both landlords and tenants which is likely to put even more pressure on the rental system come March 2022 and we do not know how long it is envisaged the arbitrations will go on for.  In short, the key question is whether this is another example of the Government kicking the can yet further down the road?

Edwin Coe’s specialist Property and Property & Trusts Litigation teams have considerable experience of advising and assisting commercial landlords and tenants in these disputes and we will be pleased to provide tailored advice to meet your requirements.

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