The Commercial Rent (Coronavirus) Bill Is Almost Here – Are You Ready For The Changes?

What is the Commercial Rent (Coronavirus) Bill?

The Commercial Rent (Coronavirus) Bill (the Bill) is due to come into law on Friday 25 March and is being introduced by the Government to resolve disputes between commercial landlords and tenants relating to the payment of Covid-19 rent arrear payments. It will apply to England and Wales only.

The Bill allows for the ring-fencing of rent arrears accrued by certain businesses (such as cafes, pubs, hotels, restaurants, and gyms) who were legally forced to close. The definition of rent includes service charges, late payment interest, insurance rent, and the requirement to top-up rent deposits where the landlord has drawn down on the deposit to cover rent debts accrued during the ‘protected period’ (see below for further details on what the ‘protected period’ is).

The rollout of the legislation coincides with the ending of the moratorium protecting commercial tenants from eviction, permitting landlords to forfeit commercial leases for non-payment of rent arrears that are not ring-fenced under the new Bill.

The Bill will enable landlords and tenants to apply to an arbitrator to resolve any disputes regarding the ring-fenced rent debts. It is supported by a new Code of Practice. Binding arbitration is to only be carried out in cases where landlords and tenants are not able to come to an agreement.

What is the new Code of Practice?

The Code of Practice offers guidance on how parties should resolve Covid-19 commercial rent disputes. The guide aligns with the Bill, providing additional guidance on how parties should negotiate and sets out:

Who does the Commercial Rent (Coronavirus) Bill apply to?

The Bill and Code will apply to commercial rent debts related to the mandatory closure of businesses, i.e. gyms, pubs, restaurants, retail (including supply chains) leisure, manufacturing, industrial and logistics, and sports, during the pandemic. However, debts accrued at other times (outside of the ‘protected period’) will not be included. The Bill will also not apply to tenants who voluntarily chose to close during that period.

If a tenant already has compromised Covid-19 rent arrears under a company voluntary arrangement (CVA) then they cannot apply for arbitration for those arrears. This may also prevent the scheme from being relied upon by tenants who implemented CVA’s before the outbreak of Covid-19 where the CVA-discounted rents have continued to apply during the pandemic. Also, a tenant would not be allowed to propose a CVA for 12 months after a referral to the scheme has been made either.

What is a ‘protected period’?

A ‘protected period’ refers to the period during which the tenant’s business was subject to restrictions as a result of coronavirus regulations. In England, the protected period commenced on 21 March 2020, lasting until 18 July 2021, including the last day on which the tenant’s business was subject to restrictions.

However, the Bill does not cover multiple protected periods. For example, tenants who were able to open in England during summer 2020 but were then forced to close again can treat the whole of the period through to when they were allowed to re-open again in the spring/summer 2021 as a protected period.

Furthermore, protected periods include a period during which any ‘specific coronavirus restriction’ is applied to the business. For example, hospitality will include periods during which there were limits in place, such as the limit on the number of households and the size of parties.

Regarding non-essential retailers, the relevant date is likely to be 12 April 2021.

Will guarantors be affected?

The scheme only considers applications for arbitration made by either the commercial landlord or tenant.

What are the arbitration deadlines/time limits?

The landlord or tenant may only refer arrears that relate to a protected period to arbitration within a six-month time period, starting on the date of when the legislation comes into force. Tenants who fail to apply for arbitration during the six-month window will have no further protection.

What will the arbitration process be?

Landlord and tenants are not obliged to negotiate rent arrears under the new scheme. However, if an agreement cannot be reached, either party can apply for the matter to be referred to the binding arbitration scheme.

The process can be quite long and is split into sections. Firstly, a letter of notification by either party including a proposal for settlement of the rent arrears in line with the new Code. The other party will then have the opportunity to accept or respond with a counterproposal. If this does not result in an agreement, an application for arbitration can be made.

The other party has 14 days to submit their own proposal, both parties are encouraged to include evidence. The parties will then have the option to request a public hearing for the arbitration which the arbitrator will seek to conduct within 14 days. If no request is made, the arbitrator will consider the matter based on the documents provided.

Finally, both parties will be notified of the award made within 14 days of the arbitration hearing and the arbitrator’s award will be legally binding. When deciding what award to make, the arbitrator will assess the proposal and evidence submitted by both parties in accordance with the principles, viability, and affordability set out within the new code. For example, if the arbitrator considers one of the proposals to be in line with those principles, they will make an award on those terms or if both are in accordance then it simply comes down to whichever is most consistent.

Who will the arbitrator be?

Applications to become arbitrators closed on 11 February 2022 and the Government is currently assessing the applications.

What happens to existing settlements/concessions?

The scheme will not be used to re-open existing concessions/settlements that have already been agreed upon between the parties. It is encouraged for both parties to reach settlements and agreements between themselves, if possible, in accordance with the updated Code.

What happens in regards to Court proceedings?

If the landlord issues Court proceedings before 10 November 2021 then they are still entitled to continue with those proceedings. However, if the landlord issued proceedings on or after 10 November 2021, the tenant would then have the right to ensure that proceedings are stayed, pending arbitration.

What about arrears outside of protected periods?

No right or protection to relief is given in respect of arrears for periods outside of a protected period. These are rent arrears due after 18 July, or earlier for some tenants.