The Commercial Rent (Coronavirus) Act 2022 (the “Act”) offers landlords and tenants a binding arbitration process to resolve Covid-related arrears disputes which arose due to the mandatory closure of businesses. We previously examined the Bill before it in came into force and sought to answer whether it would be fit for purpose. Despite the arbitration process being widely talked about and available for both landlords and tenants alike since March 2022, there has been very little use of the scheme.
One case which was recently decided, held the tenant’s debt was not protected by the Act and consequently the tenant would have to pay the landlord the withheld rent.
Due to the Coronavirus pandemic, jewellery retailers Ernest Jones and H.Samuel say they were forced to close all their retail stores during lockdown. Most employees were furloughed, with the exception of 35 members of staff who continued to work during this period with only two members of staff not required to work from home.
The jewellery retailers sought to invoke the process against the landlord in relation to their Hertfordshire premises in an attempt to obtain relief from their rent arrears during the pandemic. The withheld rent payments amounted to £448,043.
Section 4(1) of the Act provides the Act only applies to premises which are affected by the ‘closure requirement’. This is defined by Regulation 5(1) of the Health Protection (Coronavirus, Business Closure) (England) Regulations 2020 as a requirement imposed by the Coronavirus regulations forcing the closure of a business or premises ‘offering goods for sale or for hire in a shop’.
The Arbitrator’s decision
The arbitrator found in favour of the landlord. Although the tenant’s main business was for retail purposes, the arbitrator held that the premises in question were an office and the fact that two employees went into the office during the pandemic meant that the premises were not subject to the same restrictions as their retail stores. Thus, the premises did not meet the requirement of Section 4(1), which, in turn, excluded them from protection by the Act.
As a result, the tenant was liable to pay the landlord the withheld rent of £448,043.
This is the only decision seen so far in relation to the arbitration process which is open to landlords and tenants until October 2022. Only time will tell if engagement with the process will grow during this window and whether more parties will utilise this scheme specifically designed to tackle and resolve Covid-related arrears disputes arisen from mandatory closure of businesses.
The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like to find out more about how Hamlins can help you, please get in touch.