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Section 82 of the Coronavirus Act 2020, which prevents commercial landlords from evicting tenants for the non-payment of rent, is set to be repealed on 25th March 2022. This should coincide with the coming into force of the Commercial Rent (Coronavirus) Bill, which introduces a scheme intended to resolve disputes relating to the payment of Coronavirus-related commercial rent arrears. These are currently estimated to stand at an incredible £7.5 billion.
Among the sectors which the government hope will benefit from the scheme’s introduction are hospitality and leisure, retail, manufacturing, and logistics.
How will the scheme work?
Broadly, rent arrears relating to protected periods when a business was subject to a mandatory closure order will be ring-fenced, meaning that landlords cannot avail themselves of any of the usual remedies such as forfeiture, CRAR, debt recovery claims, bankruptcy or winding-up petitions. Instead, both parties will have a period of six months from the date the legislation comes into force to refer their dispute over outstanding rent arrears for determination by an arbitrator.
However, if a tenant has already compromised their Covid-19-related rent arrears under a Company Voluntary Arrangement (CVA), they will not be able to apply for arbitration in respect of those arrears. This provision may also catch tenants who implemented their CVAs pre-Covid 19, where the CVA-discounted rent has continued to apply through the pandemic.
Also, tenants will not be permitted to propose a CVA for twelve months after a referral to the arbitration scheme has been made.
The scheme does not apply to debts that accrued outside of the protected period, or to arrears of tenants who closed voluntarily during that period.
What counts as ‘rent’?
The term ‘rent’ is given a broad interpretation and includes late payment interest, service charges and insurance rent. It also includes the requirement to top-up a rent deposit where the landlord has drawn down on the deposit to cover arrears accrued during the protected period.
Any proceedings for the recovery of a ‘protected rent debt’ issued between 10th November 2021 and the date on which the Act comes into force will be subject to an automatic stay of proceedings on the application of either party.
Insolvent business tenants
It is made very clear that the scheme’s purpose is not to protect insolvent business tenants but to consider whether businesses that are struggling to meet their obligations and continue trading could return to solvent trading. Accordingly, if the arbitrator determines that the tenant’s business is not viable and would not be so even if the tenant was granted relief, they must dismiss the reference to arbitration. The tenant must then take their chances through the usual routes.
The Bill makes it clear that when assessing the tenant’s ongoing viability, the arbitrator should disregard the possibility of the tenant taking on more debt or going through a restructuring process.
A balancing act
If the viability test is satisfied, the arbitrator will then consider each party’s proposals for rent relief. They should favour the proposal that is most likely to preserve the viability of the tenant’s business as far as that is consistent with preserving the landlord’s solvency.
Code of Practice for Commercial Relationships
On 9th November 2021, the government published the revised Code of Practice for Commercial Relationships between landlords and tenants. They say the Code “aligns with the Commercial Rent (Coronavirus) Bill, providing further guidance on how parties should negotiate, and can be used by any business to help them resolve rent disputes even if they fall outside of the scope of the new legislation.”