Commercial Rent (Coronavirus) Bill 2021-22 (the ‘Bill’)
The Government expects to have this Bill passed by the end of March 2022. If passed, it will have a significant impact on the ability of Landlords to recover commercial rent arrears which accrued during periods of enforced closure during the pandemic.
Protected Rent Debts
The Bill creates Protected Rent Debts which are rent arrears, service charges, and interest thereon which are due under a commercial tenancy where:
- the tenancy was adversely affected by the pandemic, meaning if between 2pm on 21 March 2020 and 11:55pm on 18 July 2021 (in England) either the whole or part of the business carried on by the tenant at or from the premises, or the whole or part of the premises, was subject to a closure requirement; and
- the rent arrears are attributable to a period of occupation by the tenant for, or for a period within, the Protected Period applying to the tenancy;
- Protected Period means 21 March 2020 to 8 July 2021 or the last day on which the business or premises was subject to a closure requirement or a specific coronavirus restriction, which for garden centres appears to be 13 May 2020, for non-essential retail 12 April 2021, and for hospitality and nightclubs 18 July 2021.
Effect on Enforcement
As currently drafted (it is in the report stage and has not yet received any amendments) it will have the following effects:-
- If court proceedings for commercial rent arrears were commenced before 10 November 2021 then the Bill when passed will have no effect on that landlord’s ability to claim for those arrears.
- If court proceedings were commenced on or after 10 November 2021 but before the Bill is passed, then:
- Either party to those proceedings can apply for a stay to enable the matter to be resolved by arbitration or otherwise and the court must grant the stay;
- Either party can then refer the matter to arbitration;
- The landlord will not be able to enforce or rely on the Judgment Debt so far is it relates to a protected rent debt or any interest on it, during the ‘moratorium period’
- The ‘Moratorium Period’ commences on the date that the bill is passed and ends when:
- If neither part has referred the matter to arbitration within 6 months of the Bill passing into law;
- Where the matter is referred to arbitration, with the day on which the arbitration concludes;
- Arbitration concludes when either; Arbitration proceedings are abandoned or withdrawn by the parties, the time period for appealing expires without an appeal being bought; or any appeal bought is finally determined, abandoned or withdrawn.
- If the arbitrator makes an award giving the tenant relief or an agreement is reached between the parties, any judgment already obtained will be taken as altered in accordance with the arbitrators award or the agreement;
- After the Bill is passed, then during the Moratorium Period, Landlords cannot:
- start proceedings to enforce a Protected Rent Debt;
- use CRAR in relation to a Protected Rent Debt;
- exercise a right of re-entry or forfeiture for non-payment of the Protected Rent Debt;
- Present a winding up petition against a corporate tenant or guarantor where the debt is a Protected Rent Debt;
- Present a bankruptcy petition against an individual tenant or guarantor, based on a failure to satisfy a statutory demand based on a Protected Rent Debt, or an unsatisfied judgment or order in respect of a Protected Rent Debt where the claim for the debt was issued on or after 10 November 2021;
If the parties cannot reach an agreement on the Protected Rent Debt, then the matter is referred to arbitration, and the arbitrator must:
- Determine if the tenant’s business is viable or would become viable if the tenant were to be given relief from a Protected Rent Debt; and then
- Consider if the tenant should be given relief from payment, and if so what relief to give.
The parties put forward proposals based on what the landlord is prepared to accept and what the tenant is prepared to pay. The arbitrator then applies the ‘Arbitrator’s Principals’ at section 15 of the Bill, which are that:
- Any award should be aimed at preserving, or restoring and preserving “the viability of the business of the tenant, so far as that is consistent with preserving the landlord’s solvency” (s.15(1)(a) and ”that the tenant should, so far as is it is consistent with the principle in paragraph (a) to do so, be required to meet its obligations as regards the payment Protected Rent in full and without delay”
- In assessing the viability of the tenant’s business the arbitrator must, have regard to:
- The assets and liabilities of the tenant, including any other tenancies to which he is a party;
- The previous rental payments made under the tenancy from the tenant to the landlord;
- The impact of coronavirus on the tenant’s business;
- Any other information relating to the tenant’s financial position that the arbitrator considers appropriate.
- In assessing the solvency of the landlord, the arbitrator must so far as is known, have regard to:
- The assets and liabilities of the landlord, including any other tenancies to which he is a party, and
- Any other information relating to the landlord’s financial position that the arbitrator considers appropriate.
- In making the assessment the arbitrator must disregard the possibility of either party borrowing money or restructuring their business.
Any arbitration award can be appealed and there will be no case law or precedent to assist the arbitrator in interpreting the Bill.
The Property Litigation Association has pointed out the deficiencies with the Bill that any arbitrator (and the parties) will face in implementing it in their evidence to Parliament at this link.
It appears that appeals and satellite litigation are highly likely.
Any arbitration award made but not met by the tenant, will be able to be enforced in the usual way pursuant to section 66 of the Arbitration Act 1996.