New Measures For Commercial Landlords On COVID-19 Pandemic For Unpaid Rent

New measures in Bill to assist commercial landlords and tenants in resolving rent debts resulting from the COVID-19 pandemic.

Details:

  • Government introduces Bill into Parliament proposing a new binding arbitration process to help landlords and tenants find proportionate resolution of COVID-19 related rent debt.
  • County Court and High Court Judgements on rent debt claims issued from 10 November 2021 to be considered by the arbitration system.
  • Bankruptcy proceedings commenced from 10 November 2021 and resulting orders to be made void.
  • These provisions are included in the Commercial Rent (Coronavirus) Bill.
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The Department for Business, Energy, and Industrial Strategy, and the Department for Levelling up, Housing and Communities has announced the introduction of the Commercial Rent (Coronavirus) Bill into Parliament alongside a new code of practice.

The Bill will introduce a ringfence for rent debts built up as a result of mandated business closures during the pandemic whilst establishing a new binding arbitration process aimed at finding a proportionate solution which protects jobs, prevents further damage to the economy and enables a return to normal commercial relations.

The Bill will introduce a ringfence for rent debts built up as a result of mandated business closures during the pandemic whilst establishing a new binding arbitration process aimed at finding a proportionate solution which protects jobs, prevents further damage to the economy and enables a return to normal commercial relations.

The code can be used by any business to help them negotiate and resolve rent disputes even if they fall outside of scope for arbitration, further details of this scope can be found within the code.

Many landlords and tenants are working well together to reach agreements in respect of rent debts resulting from the pandemic; however, some landlords have pursued remedies such as County Court or High Court Judgements.

The government intends protected rent debts to be resolved by mutual agreement, or by the Bill’s arbitration system, which considers both parties’ circumstances in the exceptional context of the pandemic. The Bill, if passed, will allow a stay of any debt claims that include ringfenced debt and are issued between 10 November 2021 and the Bill coming into force. It would enable the ringfenced debt under these claims, and any County Court or High Court Judgements made in respect of such claims to be subject to arbitration. Any registration of such judgments for ringfenced debt may be cancelled following an arbitration award. The Bill, if passed, will prevent issue of debt claims including ringfenced debt until the end of the arbitration application period or the arbitration process.

The Bill, if passed, will also prevent a landlord from petitioning for bankruptcy of a business tenant such as a sole trader, based on non-payment of a statutory demand relating to any ringfenced debt served on or after 10 November 2021 and before the Bill comes into force. It will also prevent a petition based on a judgment debt if the claim was issued in this period. If a petition is presented or an order is made relying on such a petition in this period, the Bill provides for these to have no effect.

In line with the government’s intention that protected rent be resolved by agreement or through consideration of both parties’ circumstances, the government discourages landlords from drawing down on tenancy deposits – or where already drawn, requiring landlords to top up – to cover ringfenced rental arrears. If a landlord has already drawn down on the deposit to account for ring-fenced debt, the Bill would suspend the requirement for the tenant to top-up the deposit and the sum drawn down may be considered within arbitration.

Tenants are encouraged to specify which period of rent is being paid for. If an unspecified amount is, or has been, paid by the tenant following the end of the ringfenced period, the Bill provides for it to cover rent outside the ring-fenced period before it is used for the ringfenced period.

To provide the time to introduce and pass the legislation, the moratorium on forfeiture and restrictions on the use of Commercial Rent Arrears Recovery (CRAR) regime remain in place until 25 March 2022, unless legislation is passed ahead of this. The moratoriums on forfeiture in Wales and Northern Ireland respectively are in place until 25 March 2022. There are restrictions on presenting of winding-up petitions until 31 March 2022.

Following the replacement of the current protections with the Bill’s arbitration legislation, for debts out of scope of Bill’s binding arbitration process, landlords will be able to exercise their ordinary remedies in the ways they did prior to the introduction of the moratorium in March 2020. For debts in scope of the Bill, these ordinary remedies will be available after the application period for arbitration if no application is made. If an arbitration award is made and not complied with then the usual remedies would apply.

Further information

The Commercial Rent (Coronavirus) Bill will apply in respect of unpaid rent arrears relating to the ring-fenced period, of business tenants which:

  1. a) Were mandated to close their premises or business (in whole or in part, including with exceptions such as non-essential shops being allowed to open for collections) under regulations made under the Public Health (Control of Disease) Act 1984 during the COVID-19 pandemic; and
  2. b) Lease their premises under a business tenancy, as defined by Part II of the Landlord and Tenant Act 1954; that is, a tenancy under which premises are occupied by the tenant for business purposes (or business and other purposes)

The Bill provides for:

  1. A claim for a county court judgement or high court judgement, made between 10 November and commencement of the Bill and including debt within the scope of the Commercial Rent (Coronavirus) Bill, to be eligible for arbitration under the process in the Bill. The Bill will prevent issue of debt claims including ringfenced debt from commencement until the end of the arbitration application period or the arbitration process.
  2. A petition for bankruptcy relating to debts within the scope of the Commercial Rent (Coronavirus) Bill where the statutory demand or claim on which the petition is based was issued between the 10 November 2021 and commencement of the Bill will be effectively void, and any order made relying on such petitions would also be void. The Court will have power to restore the debtor to which the petition or order relates, to the position it was in immediately before the petition was presented. The Bill will prevent a landlord from petitioning for bankruptcy of a business tenant such as a sole trader, based on non-payment of a statutory demand relating to any ringfenced debt served on or after 10 November 2021 and before the Bill comes into force. It will also prevent a petition based on a judgment debt if the claim was issued in this period.

Summary

  • New laws to be introduced to provide a legally-binding process to resolve the remaining commercial rent debt.
  • A new Code of Practice published to guide landlords and tenants in how to negotiate a way forward.
  • Changes will protect tenants from rent debt claims against them and help the market return to normality.

From 25 March 2022 (subject to Parliamentary passage) new laws introduced in the Commercial Rent (Coronavirus) Bill being introduced in Parliament will establish a legally-binding arbitration process for commercial landlords and tenants who have not already reached an agreement.

Tenants that can pay should be expected to pay their rent arrears.

Tenants that are unable to pay in full should negotiate with their landlord with the expectation that the landlord waives some or all the rent arrears where they are able to do so.  This would need to be affordable both for the tenant and the landlord.

Any settlement of rent should aim to preserve (as far as possible) the tenant business and the jobs it supports, without undermining the solvency of the landlord.

The landlord and tenant should act with transparency and good faith.

To know more about CRAR and how we can help you,  please visit our CRAR pages in link blew,

Commercial Rent Arrears Recovery (CRAR) & Forfeiture of Lease