The Commercial Rent (Coronavirus) Bill and new Code of Practice
Key Contact: Jennifer Butcher
Author: Katie Hardie
The Commercial Rent (Coronavirus) Bill 2021-22 (“the Bill”) is due to be passed by 25 March 2022 subject to Parliamentary approval.
Aim of the Bill and Code
The purpose of the Bill is to resolve claims for rent arrears that have accrued during periods of enforced closure because of the COVID-19 pandemic by introducing a binding arbitration process if landlords and tenants have not been able to reach agreement.
When the Bill comes into force, it will replace 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 statutory arbitration is in progress but strictly only in respect of certain ringfenced rent arrears.
The Code of Practice for commercial property relationships was issued on 9 November 2021 (“the Code”) and replaces the existing Code of Practice first issued on 19 June 2020 following the COVID-19 pandemic. The Code is intended to supplement the Bill; however, it applies to all commercial rent arrears and not only those protected debts that will fall within the scope of the new arbitration scheme.
Together, the Bill and the Code ensure that landlords and tenants share the financial burden proportionately and balance their competing interests where tenants cannot pay arrears in full but also acknowledge, as far as possible the contractual obligation on the tenant to pay their rent. Accordingly, where tenants can pay rent in full the Code states that they should do so.
Landlords and tenants should attempt to settle their disputes by negotiation in the first instance and failing agreement the dispute can then be referred to arbitration.
The overriding aim of the Bill is to preserve otherwise viable businesses and the jobs that they support.
What tenancies will the Bill apply to?
The Bill will cover any business tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies (including a “contracted out” lease).
What rent payments will be covered under the Bill?
The Bill protects rent arrears (including service charges, insurance rent, interest and VAT) that accrued during a ring-fenced period during which the business tenancy was “adversely affected”, i.e. the whole or part of the tenant’s business premises were required to be closed, from 21 March 2020 until the date when specific restrictions were last removed from the relevant sector (i.e., the “protected period”). The protected period has a longstop date of 18 July 2021 in England or 7 August 2021 in Wales.
Therefore, rent will be “protected rent” where:
- The tenant was “adversely affected by Coronavirus”; and
- The rent accrued during the protected period.
The Bill applies to businesses that were required to close their premises or cease trading in whole or in part (including for example, non-essential shops permitted to open for click-and-collect only).
How will the arbitration scheme work in practice?
Either the Landlord or tenant can refer the dispute to arbitration and will have 6 months in which to do so following the Bill coming into force.
There are various key stages of the arbitration scheme, but the main steps can be summarised as follows:
- Either the Landlord or tenant will notify the other of their intention to arbitrate. The other party will have 14 days in which to respond.
- If a response is received, the party instigating the process will have 14 days to consider the response and reply, failing which either party can refer the matter to arbitration. If no response is received, either party can refer the matter to arbitration after 28 days of the initial notification.
- The referring party must advance a settlement-proposal with supporting evidence and the other party can then make a counter proposal within 14 days (also accompanied by supporting evidence).
- The parties can make a revised settlement proposal within 28 days of their original proposal.
- If no agreement can be reached, providing the matter qualifies for arbitration and satisfies the requirements as above, the arbitrator will accept the referral and make an award.
- The landlord and tenant can request for an oral hearing (heard in public) and the arbitrator will make an award within 14 days of the hearing.
Failure to engage with the process by one party may mean that a less favourable award is made based on a proposal from the other, engaging party. This will no doubt be an incentive for parties to negotiate a settlement where they can or at least engage with the process to prevent a less advantageous award being made against them.
What is the position with payments falling due outside of the protected period?
As above, the Bill will only apply to ringfenced debts (i.e. those that fall within the protected period). If a tenant has rent arrears which fall outside of this period, then it is important to note that beyond the current moratorium which is anticipated to come to an end on 25 March 2022, landlords will have a right to exercise the usual remedies (including court proceedings, statutory demand, and forfeiture) in respect of those arrears.
For information or advice on any of the topics raised, please contact our Litigation Team
