On 9 November 2021, the Government announced new legislation and a Code of Practice to resolve commercial rent arrears that accrued during the pandemic.  The new legislation is intended to take effect once the current moratorium, which protects commercial tenants from eviction, ends on 25 March 2022.  

Code of Practice

This applies to all commercial leases held by businesses, which have accrued rent arrears, due to an inability to pay rent during the Covid-19 pandemic (e.g. hospitality, retail, leisure, manufacturing, industrial and logistics, ports, food and drink).  The principles underlying the Code of Practice include:

• preserving the viability of the tenant’s business

• ensuring this is not at the expense of the solvency of the landlord

• limiting any relief to the tenant’s business needs

Binding Arbitration Procedure

The Commercial Rents (Coronavirus) Bill will introduce a binding arbitration process for businesses “in scope” and who have been unable to reach an agreement.  This includes commercial tenants whose businesses were mandated to close during the pandemic.  A full list of relevant businesses, including the date of any mandated closures, is set out in the Code of Practice.  

Timings

The arbitration process is intended to be available for a six-month window from 25 March 2022.  This will include a compulsory pre-application stage, which requires the landlord or tenant to notify the other party of their intention to arbitrate.  Following that, the application will then need to be made, including a proposal for resolution and relevant supporting evidence, within the six-month window.  The other side then has 14 days to respond and submit their counter-proposal and evidence.  The process is intended to be streamlined and the arbitrator is expected to notify the parties of their decision within 14 days of a hearing. The maximum time frame to repay is 24 months.

Evidence

A list of relevant evidence is set out in the Code of Practice and includes:

• existing and anticipated credit/debit balance

• business performance since March 2020

• tenant’s assets (noting that some may be liquid assets such as cash and other may be plant and machinery which cannot be sold without ending the business)

Existing Agreements

Any existing agreements on rent arrears should continue to be honoured, and neither the Code of Practice, nor the Commercial Rent (Coronavirus) Bill, is intended to change this.

Excluded Rent Arrears

Following 25 March 2022 landlords will be able to exercise their ordinary enforcement rights, in relation to any rent arrears that does not fall within the scope of the binding arbitration process, including drawing down on rent deposits, issuing proceedings for rent arrears and forfeiture.  

For advice on any of the above please contact our Property Litigation Team.

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