The Commercial Rent (Coronavirus) Bill has just passed its second reading in Parliament and is headed to the committee stage. It is anticipated the bill will come into force in March 2022, when the current moratorium is set to expire. The bill will replace the Code of Practice for commercial property relationships during the COVID-19 pandemic which has not been deemed a success.
Kwasi Kwarteng, the Business Secretary stated that the aim of the new bill is to encourage landlords and tenants to resolve their disputes by way of agreement. The bill will only apply to tenant businesses that were mandated to close “in full or in part” during the “protected period” between 21 March 2020 and 18 July 2021 (or 07 August 2021 in Wales). The bill also contains a retrospective moratorium protecting business tenants from any debt claims and winding up petitions made on or after 10 November 2021, in relation to rent arrears accrued during the pandemic.
New and binding arbitration
The bill will introduce a new binding arbitration process to determine disputes between landlords and tenants in relation to the arrears owed during the protected period. Either party will be able to apply for the arbitration process, but must do so within six months of the bill being passed into law. The application will also need to include a formal proposal for resolving the matter and the other party may put forward a formal proposal in response.
In determining the award to be made, the arbitrator must have regard to preserving the viability of the tenant’s business, so far as this is consistent with preserving the solvency of the landlord. The arbitrator must also take into account:
- the assets and liabilities of both the landlord and tenant;
- the previous rental payments made under the business tenancy;
- the impact of coronavirus on the business and;
- any other information relating to the parties financial position that the arbitrator considers appropriate.
Bill award timescales
The bill requires the award to be delivered “as soon as reasonably practicable” and in any event within 14 days of any oral hearing. However, this can be extended by agreement or at the arbitrator’s discretion where it is considered necessary.
The award will be a legally binding agreement; the arbitrator will have the power to write off all or part of the arrears debt, and may also determine the amount of interest to be paid, if any. The maximum timeframe in which an arbitrator can defer any rents to be paid is 24 months. The default position on costs is for the arbitration fee to be shared equally between the parties, and for each party to bear its own legal costs.
The Commercial Rent (Coronavirus) Bill appears to have been designed to specifically help those businesses which have suffered most during the pandemic, and this will be welcomed by those sectors which have seen a significant drop in footfall as a result of having no alternative but to close for much of the last two years.
However, the bill is also positioned to be particularly controversial amongst landlords as it is set to require them to take steps to waive or reduce arrears accrued by tenants during the coronavirus pandemic or potentially face being penalised during the arbitration process.
This bill also raises the question as to whether it is right for landlords to pay the costs of a government-mandated lockdown during this period.
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, don’t hesitate to contact us.