The Commercial Rent (Coronavirus) Act 2022 has now received Royal Assent. This means that from 25 March a legally binding arbitration process will be available for eligible commercial landlords and tenants who have not already reached an agreement.
This will resolve disputes about certain pandemic-related rent debt and help the market return to normal as quickly as possible.
The law applies to commercial rent debts of businesses including pubs, gyms and restaurants which were mandated to close, in full or in part, from March 2020 until the date restrictions ended for their sector. Debts accrued at other times will not be in scope.
The general moratorium on commercial evictions and restrictions on commercial rent arrears recovery (CRAR) in England and Wales ended on 24 March, but eligible businesses remain protected for the next six months during which arbitration can be applied for or until the conclusion of an arbitration.
When using the arbitration process, arbitrators may award a reduction of protected rent debt and/or time to pay, with a maximum period to repay of 24 months.
Business minister Paul Scully said: ‘This new law will give commercial tenants and landlords the ability to draw a line under the uncertainty caused by the pandemic so they can plan ahead and return to normality.
‘Landlords and tenants should keep working together to reach their own agreements where possible using our Code of Practice to help them, and we’ve made arbitration available as a last resort. Tenants who can repay their rent debts in full, should do so, and when they cannot, landlords should try to share the burden, so we can all move on.’
Christian Mole, EY UK & Ireland head of hospitality & leisure, said: ‘A significant amount of rent renegotiation and lease restructurings had already been taking place in the restaurant sector before the pandemic due to overcapacity and unsustainable rent levels which were set during the boom period of branded restaurant expansion in the mid-2010s.
‘Perhaps the biggest potential challenge will be for city centre restaurants and bars, where commuting footfall is still yet to return to pre-pandemic levels – and may never do so. Given the resulting reduced turnover, together with continuing inflationary cost pressures on labour, food and energy as well as well-documented supply chain challenges, it seems unavoidable that there may be some further degree of site closures following the end of the moratorium.’
The government encourages commercial landlords and tenants to negotiate their own agreement where possible, so that an arrangement to resolve debt is mutually agreed, instead of resorting to the arbitration process.
Mark Supperstone, managing partner at ReSolve, said: ‘The end of the eviction moratorium means that landlords will be able to call-in outstanding rents. It is natural that business owners may feel apprehensive about the pressure this could place on their finances. The Commercial Rent (Coronavirus) Bill will provide some solace with new measures to assist commercial landlords and tenants in resolving rent debts from the Covid-19 pandemic.
‘For any business owners concerned about these changes, the best advice I can give to SMEs is to talk to their landlords. Landlords and other creditors are still being patient and understanding and therefore may be open to negotiating. There may be an opportunity to reschedule and/or refinance your debts.’
The legal arbitration process will be delivered by arbitrators appointed by approved arbitration bodies from a list of suitable and available arbitrators. These include:
- Chartered Institute of Arbitrators (CIArb)
- Royal Institute of Chartered Surveyors (RICS)
- Consumer Dispute Resolution
- Falcon Chambers
- Dispute Resolution Ombudsman
- London Chamber of Arbitration and Mediation (LCAM)
- Consumer Code for Online Dispute Resolution (CCODR)
Last year, the government published an updated Code of Practice to provide commercial landlords and tenants with a clear process for settling outstanding debts.
The Code sets out that tenants who can pay their rent debt in full should do so, and that in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord shares the burden where they are able to do so, and only as far as necessary, by waiving some or all rent arrears or giving time to pay.
The Code of Practice applies across the UK. The Commercial Rent (Coronavirus) Act applies to England and Wales. Scotland has adopted an alternative approach to commercial evictions since the start of the pandemic, due to different property legislation and market conditions.
