On 9 November 2021 the Government published a draft Commercial Rent (Coronavirus) Bill.
One of the concerns throughout the pandemic has been the effect on the High Street. Having been struggling for a number of years, the fear was that the pandemic would lead to a tsunami of business failures and shop closures as retailers were unable to pay their rent. Previous measures have, effectively, kicked that problem down the road as far as possible, although it has always been recognised that some solution would have to be found to address the issue.
During the pandemic, the Government has been encouraging Landlords and Tenants to work together to manage Coronavirus related rent arrears. Previous announcements included reference to an arbitration scheme the Government was proposing to set up to enable Landlords and Tenants to resolve their differences if they were unable to agree terms between themselves.
When will the Commercial Rent (Coronavirus) Bill take Effect?
It is anticipated the Legislation will come into force by March 2022 and it is possible that there may be changes to the terms of the Bill as it moves through Parliament.
Impact of the Commercial Rent (Coronavirus) Bill on Commercial Landlords and Tenants
It is clear, however, that the Bill will have a significant impact on the rent arrears position insofar as they have been caused by Coronavirus related restrictions.
One significant impact is in relation to any Court proceedings which have been commenced by a Landlord to recover rent arrears from their Tenant. If those proceedings were commenced on or before 9 November 2021 then this Legislation will not impact the Landlord’s right to pursue those proceedings. However, any proceedings commenced on or after 10 November 2021 can be stayed on the Application of the Tenant to enable them to pursue the arbitration scheme.
The arbitration scheme affects all monies due under a business tenancy including service charges, insurance charges and interest insofar as they relate to a “protected period”.
A protected period is defined as any period during which the Tenant’s business was subjected to Coronavirus related restrictions. It would seem that would relate to a maximum period from 21 March 2020 until 18 July 2021 (in England) although in reality, for many businesses, that period will be shorter given that certain restrictions were lifted before 18 July 2021.
The legislation will also prevent Landlords from serving statutory demands in relation to commercial rent arrears for the protected period.
As drafted the Bill would appear to permit a Tenant to argue that they were still subject to restrictions even if they were able to reopen in summer 2020 before being obliged to close again when further lockdowns were imposed. By way of example, pubs and cafes were permitted to reopen in 2020, but were subjected to restrictions on numbers. I seems likely those restrictions will mean that the period will be protected for the purposes of this legislation.
The scheme anticipates a time limit of 6 months from the date the legislation comes into force for either a Landlord or a Tenant to refer the issue of rent arrears to the arbitration scheme.
The arbitrator can determine a resolution based on preserving or restoring the Tenants viability as long as that is consistent with maintaining the Landlord’s solvency. It has been made clear that as far as possible Tenants should be expected to pay in full without delay. The arbitrator will however be able to receive evidence of the financial position of both Tenant and Landlord as well as broader issues such as the financial wellbeing of the Landlord or Tenant business as a whole. This will permit the arbitrator to take into account the financial health of the entire company rather than just focusing on the profitability of a particular unit.
It has been stressed that this scheme will only relate to Coronavirus related arrears and that Tenants are expected to pay their rent which arose outside the protected period in the normal way. However, as has been set out in previous articles, there are currently restrictions on forfeiture for non-payment of rent and the use of insolvency procedures against Tenant companies in arrears. Those restrictions are in place until at least next March.
Tenants are therefore well advised to make payments of their rent where they can and to seek to negotiate terms with their Landlord if they need to. Similarly, Landlords are encouraged to engage with Tenants to agree payment plans, thereby avoiding the delay and uncertainty of the proposed arbitration scheme.