The government has published a new Code of Practice and draft Commercial Rent (Coronavirus) Bill to tackle rent arrears for businesses forced to close or operate under restrictions during the pandemic.
While many commercial landlords and tenants have already agreed over how to share Covid-19 arrears, there are still those struggling. The proposed legislation is a significant piece of statutory intervention in an industry where landlords and tenants have traditionally been bound by the terms of their lease. This makes for unprecedented times for owners and occupiers of commercial property.
The new bill provides for the ring-fencing of arrears of rent owed by business tenants affected by forced closure or restrictions during the ‘protected period’ (between 21 March 2020 and 18 July 2021). It establishes a binding arbitration system to determine what happens to ring-fenced debt if the landlord and tenant fail to agree.
The Code of Practice should be used in relation to any rent arrears accrued since March 2020 as a result of the pandemic and sets out guidance but is not binding legislation.
Under the new bill, references to arbitration can be made by either party within six months of the bill becoming law. The other party may make a counter-proposal, and revisions/offers are possible.
The arbitrator must consider whether the tenant’s business is viable and whether any relief should be granted. Relief might include writing off all or part of the ring-fenced rent, and allowing up to two years to pay any part of it.
Existing restrictions on forfeiture for non-payment of rent, the exercise of CRAR and existing limited restrictions upon presenting winding-up petitions will continue beyond March 2022.
Additionally, the bill provides that during this moratorium period in respect of ring-fenced debt, landlords cannot issue a debt claim (debt claims started after 10 November 2021 but before the day the bill becomes law can be temporarily stopped), and landlords may not draw down on rent deposits, and if already done so, the tenant is not obliged to top up that rent deposit.
The bill also states that rent paid during the moratorium period must be applied first to any rent debt that is not ring-fenced and that rent paid in the period after the end of relevant closure/restrictions but before the date the bill becomes law must be allocated first to rent not ring-fenced.
The draft bill may be amended as it makes its way through parliament.
Lee Pearce is partner and head of dispute resolution at Ellisons Solicitors
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