Pandemic rent arrears update – what you need to know
10th November 2021
The Government has made a move and introduced new laws and a Code of Practice to try and resolve the remaining commercial rent debts accrued because of the pandemic over the last 20 months.
The bad news for commercial property landlords is that tenants are still protected from eviction until 25 March 2022, after the Government introduced legislation last year which it says “provided firms with breathing space and help protect jobs” when certain businesses had to close in full or in part during the pandemic. This, it says, provided time for landlords and tenants to negotiate how to share the cost of commercial rent debts caused by the pandemic.
Now, these negotiations will be underpinned by a new Code of Practice, providing landlords and tenants with a what the Government is calling a “clear process for settling outstanding debts” before the new arbitration process comes into force next March.
The Code sets out that, in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord waives some or all rent arrears where they are able to do so.
From 25 March 2022, new laws introduced in the Commercial Rent (Coronavirus) Bill, which has just been introduced by Parliament, will establish a legally-binding arbitration process for commercial landlords and tenants who have not already reached an agreement, following the principles in the Code of Practice. Subject to Parliamentary passage, this will come into force next year.
The Bill will apply to commercial rent debts related to the mandated closure of certain businesses such as pubs, gyms and restaurants during the pandemic. Debts, says the Government, accrued at other times will not be in scope.
These laws will come into force in England and Wales, and Northern Ireland will have a power in the Bill to introduce similar legislation.
The result of the arbitration process will be a legally-binding agreement the landlord and tenant must adhere to, resolving rent arrears disputes and helping the market return to normal as quickly as possible.
From 10 November 2021 onwards, the Government is also protecting commercial tenants from debt claims, including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions, issued against them in relation to rent arrears accrued during the pandemic.
Landlords might not agree, but the Government says this measure will provide further protection to businesses which had to close and accumulated debts during the pandemic, while protections from forfeiture for business tenancies are in place under the Coronavirus Act 2020.
The Code of Practice applies across the UK. The legislation will apply to England and Wales, with a delegated power for Northern Ireland. Scotland has adopted an alternative approach to commercial evictions since the start of the pandemic, due to different property legislation and market conditions
The intention is for the new legal arbitration process to come into force from 25 March 2022, subject to Parliamentary passage of the Commercial Rent (Coronavirus) Bill that has been introduced today.
The laws will apply to businesses which were mandated to close, in full or in part, from March 2020 until the date restrictions ended for their sector. Debts accrued at other times will not be in scope.
For those tenancies that fall within scope of the Bill and have failed to reach agreement, either party can apply for arbitration unilaterally, as a backstop after negotiations have failed. Parties are free to continue to negotiate outside of the legal arbitration process once it comes into force. The Code signposts tenants and landlords to forms of alternative dispute resolution, such as mediation, if they wish to pursue this.
The Government says it encourages landlords and tenants to negotiate their own agreement where possible instead of resorting to the arbitration process.
The window to apply for arbitration will be 6 months from the date legislation comes into force, with a maximum time frame to repay of 24 months.
The new Code of Practice replaces the Code of Practice for commercial property relationships originally published on 19 June 2020 and updated in April 2021.
The legal arbitration process will be delivered by private arbitrators in accordance with guidelines set out in the legislation, and they will have to go through an approval process to demonstrate their impartiality and competency to supply dispute resolution services. BEIS will publish a list of approved bodies in due course, and landlords and tenants within scope will be able to apply directly to any approved arbitration body for their dispute resolution if negotiations have failed
Landlords, says the Government, are encouraged to attempt to reach a negotiated agreement with tenants rather than pursue a CCJ. Where a CCJ is issued, this can be considered within the legal arbitration process when this comes into effect.
Confused? Frustrated? We completely understand why. If you need help with these new laws and the road to arbitration, then give us a call today.