The new Commercial Rent (Coronavirus) Bill needs some consideration from landlords before it passes into law, expected in March, says the team at Blanchards Bailey LLP
New laws aim to restrict landlords from seizing goods on lieu of rent – shutterstock
Restrictions were put in place during the pandemic – and remain in place – to stop landlords seizing goods in
lieu of rent, forfeiting leases and stopping businesses in rent arrears from being made insolvent. The government also published a voluntary code of practice encouraging landlord and tenant to work together to resolve unpaid rent arrears.
Ringfencing rent debt
The government is now hoping to pass the Commercial Rent (Coronavirus) Bill which allows for ringfencing of rent debt built up by businesses who have been forced to close during the pandemic. It establishes
a binding arbitration system which will decide what happens to that ringfenced debt. The current moratorium measures will continue until the Bill has become law, which is believed to be on 25 March 2022.
There is also a new code of practice for commercial property relationships following the pandemic.
The Act
The Act provides that protected rent debts (including service charges and insurance) incurred by a tenant under a business tenancy which was adversely affected by COVID (where the whole or part of the business
or premises was subject to closure requirements as a result of COVID restrictions) can be referred by either the landlord or tenant to binding arbitration to resolve disputes.
The Bill will effectively extend the existing moratorium which will run from the date that legislation comes into force until:
1. six months from the date the legislation comes into force (when the parties must apply for arbitration) with a maximum time frame of 24 months for repayment;
2. Where a party has applied for arbitration, the date the arbitration is concluded or abandoned.
In addition to the current restrictions, the Bill will prevent landlords from issuing debt proceedings whilst arbitration is available or ongoing and enable the debt covered by certain debt proceedings to be considered in arbitration.
The Code
The new code makes clear that the preservation of the tenant’s business viability should not come at the expense of the landlord’s solvency and that, where it is affordable, a tenant should aim to meet their obligations under their lease in full. However, it also states that
a tenant should not have to take on more debt or restructure their business in order to pay their rent. The code provides guidance on how parties should approach negotiation with the intention that, where possible they should resolve rent disputes before the Bill comes into force. The code states that tenants will need to show landlords sufficient evidence to substantiate their need for assistance with rent.
It also states that, if settlement cannot be reached, the parties should consider mediation in this interim period. If debt proceedings are issued prior to the passing of the Act, then either party may request a stay of the proceedings and, if the claim is not stayed and judgment is obtained, any judgment debt will constitute a ring fenced debt and may be subject to the arbitration process. For further advice contact our Litigation and Disputes Resolution team on 01258 459361
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