On the 9th of November, the government introduced the Commercial Rent (Coronavirus) Bill before parliament. Alongside this Bill comes a new code of practice for commercial property relationships and guidance on how to resolve Covid-19 commercial rent disputes. The government aims to pass the Bill by the 25th March 2022.    

What does this mean for landlords?

Many businesses found themselves in rent arrears during the months of mandatory closures enforced during the lockdown. This has resulted in an income shortfall for many commercial landlords. The new Bill will look to provide an arbitration process where no agreement has yet been reached between landlord and tenant regarding these arrears.

The new statutory arbitration process will supersede any other processes previously available to landlords, meaning other remedies will be temporarily unavailable.

More specifically, any debt claims made by landlords on or after the 10th of November 2021 will be stayed if requested by one of the parties involved. Additionally, any judgement that has already been given regarding a protected rent debt in that period can still be subject to statutory arbitration. In this instance, a stay would be placed on enforcing the judgement, likely delaying a resolution until the Bill is passed into law in spring 2022.

For landlords that find themselves out of pocket, this delay may come as unwelcome.

So what does the Bill cover?

As we’ve just seen, the Bill enables tenants to deal with the matter of unpaid protected rent debts via arbitration.

“Rent” here means an amount consisting of any of the following:

  1. An amount payable by the tenant to the landlord under the tenancy for possession and use of the premises;
  2. An amount payable by the tenant to the landlord under the tenancy as a service charge;
  3. Interest on an unpaid amount relating to either a. or b.

The Bill only applies to protected rent, meaning it only applies when

  1. The tenancy was adversely affected by Coronavirus, and
  2. The rent debt was accrued during the period outlined in the guidance. In this case the period between the 21st March 2020 and 18th July 2021 (7th August 2021 in Wales).

What counts as adversely affected?

A business can claim to be adversely affected when it was subject to a mandatory closure requirement between 21st March 2020 and 18th July 2021. This also applies to where the premises the business operates from rather than the business itself was subject to a mandatory order.

Options no longer available to landlords

While previously, there were several means for landlords to recoup their lost rental earnings, these have now been temporarily paused in favour of the new statutory arbitration process.

Under the rules, from the 10th of November 2021 landlords will be unable to present:

  • Winding-up petitions for protected rent debt
  • Bankruptcy petitions against individuals for protected rent debt

How does arbitration resolve disputes?

It appears the Bill is aimed at the parties resolving the matter themselves. The arbitrator has to consider an award that both preserves and/or restores the viability of the tenant’s business while being consistent with and preserving the landlord’s solvency.

The Bill also outlines that the arbitrator can award arbitration fees. This is something else that should be borne in mind before embarking upon this process.

A difficult balance

Overall, the Bill is trying to address a difficult balance between protecting the right of the landlord to recover funds they’re owed while protecting the viability of the tenant’s business. The results of any arbitration will often depend on the unique circumstances of each party and the evidence they’re able to provide.

The Gorvins take

We’ve had a lot of experience over the last few months dealing with the issues arising out of the covid pandemic for both landlords and tenants.

The area can be a difficult one to navigate and it may seem that commercial landlords have had the more difficult time of it. Some of the relief ordinarily available to them hasn’t been made available in the same way that it has previously and it’s having an effect on their ability to recoup missing rent payments.

Overall, it seems that the statutory machinery is aimed at preserving the tenant’s ability to trade without the landlord necessarily having the opportunity to take the full amount that they would have pre-pandemic.

However, this is a new Bill, so it will be interesting to see some examples of the arbitration process when it’s up and running.

If you’re a commercial landlord or tenant and would like to discuss any aspect of the new Bill, don’t hesitate to contact Guy Lightowler on 0161-930 5175.

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