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Commercial Rent (Coronavirus) Bill

View profile for Kelsey Whitehouse
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Commercial Rent (Coronavirus) Bill - what we know so far 
 
In response to the devastating impact of COVID-19 on many UK businesses and their inability to pay rent, the UK Government is set to introduce a binding arbitration scheme to deal with rent arrears that fell due during the pandemic. On 4 August 2021, the government issued its policy statement confirming its intention to proceed with the proposed scheme. On 9 November 2021, the Business Secretary made a press release and the Commercial Rent (Coronavirus) Bill, due to become law on 25 March 2022, was published. The legislation will apply specifically to protected rent debts which are rent debts incurred by commercial tenants during periods of enforced closure between 21 March 2020 and 18 July 2021. 
 
The two significant proposals intended to be legislated are: 
 For rent accrued during the pandemic by businesses affected by enforced closures to be ring-fenced; and
 For binding arbitration to be undertaken where negotiations between landlords and tenants have failed. 
 
A revised Code of Practice has also been published which will see an expectation for both landlords and tenants to take a collaborative approach to resolve outstanding issues over rent arrears. Landlords will be expected to consider rent deferrals and waivers, dependent on periods of closure impacting the tenant’s business and ability to trade. Where landlords and tenants are unable to reach agreement through negotiation, they will be expected to undergo legally binding arbitration. 
 
What is the binding arbitration scheme?
 
Before proceeding with binding arbitration, landlords and tenants will be expected to negotiate in good faith and in consideration of the guidance contained in the revised Code of Practice. Where possible, both parties should seek to agree mutually beneficial terms and landlords will be expected to share the financial burden of the impact of the Coronavirus. 
 
As a last resort, and in absence of agreement, binding arbitration will be put in place. It is anticipated that arbitration will be undertaken by government-approved arbitrators who will benefit from a wide discretion when determining rent arrear cases. Either party will be free unilaterally to refer the matter for arbitration and will have 6 months to do so from the date the legislation comes into force. Once referred, the arbitrator will consider what relief ought to be granted. 
 
Tenants will be bound by the decision of the arbitrator and will have to pay rent debts accrued during the ring-fenced period in accordance with that decision. It is proposed that a maximum timeframe of 24 months will apply for the repayment of any award by a tenant. 
 
Ring-fencing of rent arrears 
 
The legislation will ring-fence rent debt accrued from 21 March 2020 to 18 July 2021 (7 August 2021 for Wales). This will apply to commercial tenants who have been affected by enforced business closures due to COVID-19 until restrictions for their sector were removed. The new process will not apply to all commercial premises and the government has provided a non-exclusive list of businesses which so far includes pubs, gyms, and restaurants. 
 
The new measures are set to target those businesses which were required to fully or partially close for various periods from 21 March 2020 onwards. It is highly likely that sectors such as hospitality and retail will benefit from the longest periods of ring-fencing, given the significant restrictions imposed upon them. The new Code of Practice provides guidance on which periods will qualify as being protected for different business sectors. 
 
The government has made it clear that those business tenants who have not been affected by enforced closures during the pandemic, and have means to pay, should pay. Tenants are also expected to pay rent in accordance with the terms of their lease from the date restrictions for their sector were lifted. 
 
What would the scheme mean in practice?
 
The government intends for the legislation to come into force by 25 March 2022, when existing legislative protections for most commercial tenants will end.
 
Once the legislation is passed, protective measures for commercial tenants will only apply to ring-fenced arrears. This will have the following implications for landlords:
 
 Landlords will be able to exercise their right to evict any tenant for the non-payment of rent incurred prior to March 2020 and from the end of the ring-fenced period. 
 Landlords will be able to evict any tenant that has not been affected by enforced business closures for non-payment of rent accrued at any time. 
 Landlords will be able to charge interest on rent accrued from the end of the ring-fenced period onwards - provided interest payments are included in the terms of their lease.
 
Once the bill is enacted, enforcement options for ring-fenced arrears will be prohibited or will be stayed during a moratorium period. From the date of enactment, until the last date on which a claim could have been referred to arbitration or the date on which arbitration was concluded, landlords will be prevented from: 
 
 Drawing down on rent deposits.
 Issuing debt recovery proceedings.
 Using Commercial Rent Arrears Recovery (‘CRAR’).
 Forfeiting a lease to obtain possession of a property.
 Issuing a winding-up petition against the tenant. 
 
The above restrictions will only apply to ring-fenced arrears. Non-ringfenced arrears will be subject to the ordinary enforcement measures post March 2022.
 
As always, the Bill is in draft only and remains subject to amendment throughout the Parliamentary process.