The Commercial Rent (Coronavirus) Bill and new Code of Practice for Commercial Property Relationships following the Covid-19 pandemic
17 November 2021
- The Bill
The Government has recently introduced a bill into Parliament, The Commercial Rent (Coronavirus) Bill (“the Bill”) with the intention of passing it by 25 March 2022 once it has been approved by Parliament.
The Bill applies to commercial rent arrears that were accrued by tenants when their businesses were forced to shut during the height of the pandemic when the national lockdown was imposed.
The Bill is going to establish a statutory arbitration process for commercial landlords and tenants in England and Wales. The new statutory arbitration process will apply to those landlords and tenants who have not already reached an agreement in relation to the rent arrears in the context of a business tenancy. The Bill will not affect any pre-existing agreements.
The Bill is intended to include rent, service charges, insurance costs and any interest from 21 March 2020 to the date that the restrictions ended for the tenants’ specific area of business (“the Arrears”). Therefore, the latest dates when the restrictions ended would appear to be as follows:
In England: From 21 March 2020 to 18 July 2021
In Wales: From 21 March 2020 to 7 August 2021
Collectively referred to as the “Relevant Period”.
The Arrears which accrued during the Relevant Period will effectively be ringfenced. The Bill does not apply to any other type of accrued debts.
The Bill introduces a moratorium period for the statutory arbitration. The moratorium period will commence from the date that the Bill comes into force as an Act until:
- 6 months after the date of the Act if neither the landlord nor the tenant applies for arbitration in relation to the Arrears; or
- The date after the arbitration has concluded or has been abandoned.
(“the Moratorium Period”)
The Bill, once it is passed into law, will prevent landlords from taking any enforcement action against tenants for the recovery of the Arrears during the Moratorium Period by any methods such as:
- Commercial Rent Arrears Recovery (“CRAR”)
- Presenting a winding up petition
- Presenting a bankruptcy petition against individuals where the statutory demand
used to commence insolvency proceedings was served on or after 10 November 2021
- Issuing proceedings for a debt claim
- Forfeiture of the Lease
The purpose of the Moratorium Period is to place importance upon the arbitration process. Where debt claims have been issued in the court on or after 10 November 2021 but before the Bill is enacted as legislation, if either the landlord or the tenant applies for a stay, the proceedings will be stayed to enable a resolution by arbitration.
Where a landlord has obtained a County Court Judgment or High Court Judgment against a tenant in relation to the Arrears accrued during the Relevant Period, enforcement action will be stayed to enable arbitration.
In relation to any bankruptcy order made against a tenant in relation to the Arrears on or after 10 November 2021 but before the Bill comes into force as an Act, that order will be void.
In addition to the above, a landlord may not use the rent which tenants are currently paying towards settling the Arrears. Landlords are also prohibited on being able to draw down on any rent deposit and use it towards the Arrears accrued during the Relevant Period. If a landlord has drawn down on a rent deposit, they cannot then oblige the tenant to top the rent deposit back up during the Moratorium Period.
- The New Code
The New Code replaces the Code of Practice for Commercial Property Relationships during the Covid 19 Pandemic which was published on 19 June 2020. The New Code is intended to complement the Bill.
At Annex C, the New Code explains the stages that the binding arbitration process will have. We set those stages out in the flow chart below so that they are easy to see:
The decision of the arbitrator will be legally binding. There may be grounds for appeal in limited cases.
Arbitration bodies will have to show that they are competent to supply arbitration services. The criteria are they meet standards such as impartiality, monitoring and training of their arbitrators and, in the event of complaints made against their arbitrators, that there is a robust appeals system in place. More importantly, it is a requirement that arbitrators are experienced in business finances and commercial negotiations.
- Conclusion
It is clear that the government’s priority at present is to safeguard tenants’ interests.
As with any Bill, it is subject to change before it is approved by Parliament and enacted into legislation.
We will monitor the position and issue guidance on any further updates as they become available.
If you have any questions on this issue or need help, please contact our dispute resolution experts.
