Through various legislation the Government introduced measures to help protect businesses who were unable to pay their rent which heavily restricted what action could be taken by landlords. That protection is due to end on the 25 March 2022 and The Commercial Rent (Coronavirus) Bill (the Bill) will come into force.
As explained in our previous article, the Bill will introduce a binding arbitration process to resolve claims for rent arrears that have accrued during periods of enforced closure, if parties have not already reached agreement.
Once enacted, the Bill will replace the existing restrictions with a new moratorium that will prevent landlords from exercising their usual remedies while the application period for arbitration is open or while a statutory arbitration is in progress, but strictly only in respect of certain ringfenced rent arrears.
The “Code of Practice for commercial property relationships during the COVID-19 pandemic” has been updated to form the New Code and shall continue to supplement the Bill.
The New Code is directed to all commercial rent debts not simply those protected by the Bill. In short, the intention of the New Code is that where possible parties should resolve rent disputes.
The New Code repeats that tenants who can pay their rent debt in full should. However, where this is not possible then the initial stance is that a debt accrued as a result of the COVID-19 pandemic should not force an otherwise viable business to cease operating.
The New Code and the Bill recognise that contractual commitments should be acknowledged as far as possible. In the circumstances where tenants cannot pay in full landlords and tenants are expected to share the financial burden proportionately balancing their respective interests.
The Bill and where it will apply:
1. What is a protected rent debt?
Section 3 (2) of the Bill defines this as a debt under a business tenancy consisting of unpaid protected rent if:
(a) the tenancy was adversely affected by coronavirus and
(b) the rent is attributable to a period of occupation by the tenant for, or for a period within, the protected period applying to the tenancy.
2. What is a business tenancy for the purpose of the Bill?
(a) A lease.
(b) An underlease.
(c) A tenancy by estoppel.
(d) A periodic tenancy, whether express or implied.
(e) An agreement for lease.
(f) An agreement for underlease.
3. What is rent under the Bill?
Rent is defined at Section 2 (1) of the Bill as an amount consisting of one or more of the following:
(a) an amount payable by the tenant to the landlord under the tenancy for possession and use of the premises comprised in the tenancy (whether described as rent or otherwise);
(b) an amount payable by the tenant to the landlord under the tenancy as a service charge;
(c) interest on an unpaid amount within paragraph (a) or (b).
4. What does adversely affected by coronavirus mean?
Where the whole or part of the business carried on by the tenant at or from the
premises comprised in the tenancy, or the whole or part of those premises, was of a description subject to a closure requirement for any relevant period.
A closure requirement means a requirement imposed by coronavirus regulations which is expressed as an obligation to close businesses, or parts of businesses, of a specified description, or to close premises, or parts of premises, of a specified description.
The relevant period in England means a period beginning at or after 2 p.m. on 21
March 2020 and ending at or before 11.55 p.m. on 18 July 2021.
5. What is the protected period?
The period beginning on 21 March 2020 and ending on 18 July 2021 in England or the last day on which the business or premises or part thereof was of a description subject either to a closure requirement or a specific coronavirus restriction.
If rent due is only partly attributable to a period of occupation within the protected period, then only the part that is attributable to that period qualifies as protected rent.
6. What happens if you are caught by the Bill?
Any amounts subject to the Bill are required to be resolved by mutual agreement or arbitration. Any debt claims already at Court made between 10 November 2021 and 25 March 2022 can be stayed on an application made by either party.
The landlord or the tenant may refer the matter to arbitration within the period of six months beginning with the day on which the Bill is passed into law
The main stages of the proposed arbitration scheme follow the strict requirements and timeframes as set out in both the New Code and the Bill. The main process is as follows:
(a) The landlord or tenant notifies the other party of their intention to apply for arbitration.
(b) The other party then has 14 days to respond.
(c) If a response is:
(i) received, then the party that initiated the process has 14 days to consider the response and reply to it. Either party can then refer the matter to arbitration;
(ii) not received, then either party can refer the matter to arbitration after 28 days of the initial letter of notification.
(d) The party that refers the case to arbitration (the Claimant) must include a formal proposal for resolving the matter accompanied by supporting evidence.
(e) The other party (the Respondent) may put forward a formal counter-proposal in response within 14 days accompanied by supporting evidence.
(f) Either party can submit a revised formal proposal within 28 days of their original formal proposal accompanied by supporting evidence.
(g) The arbitrator must dismiss the case in certain circumstances. If the case is eligible and the arbitrator can deal within the specified times, the arbitrator will accept the referral and make an award.
(h) If the arbitrator determines that the tenant’s business is viable (or would become viable if provided with relief from payment) it must consider whether to award relief and what relief.
(i) It is open to either party to request an oral hearing, in which case the arbitrator must make an award within 14 days of the hearing. Otherwise, the arbitrator must make an award as soon as reasonably practicable after the parties have put forward final formal proposals or the time for doing so has expired.
(j) If one formal proposal is consistent with the principles of viability and solvency set down in the Bill, but the other is not, the arbitrator must make the award set out in the proposal that is consistent.
If both formal proposals are consistent, the arbitrator must make an award as set out in whichever proposal is most consistent.
Where neither formal proposal is consistent, the arbitrator must make such award as they consider appropriate.
