Although the government put emergency measures in place to curtail creditors amid the pandemic, these are being phased out. On 9 November 2021, the government published a new code of practice for commercial property relationships.
At the same time, it introduced the Commercial Rents (Coronavirus) Bill into parliament, expected to be passed by 25 March 2022.
Pursuant to the bill, a new arbitration scheme will be created to deal with arrears of rents, including service charges and insurance, relating to mandated closures due to Covid (from 21 March 2020 to 18 July 2021). While an arbitrator will have power to waive all or part of the rent, the code of practice makes it clear that tenants who can afford to pay any arrears should do so.
When assessing affordability, the arbitrator cannot consider the possibility of borrowing additional funds or restructuring, and will be looking at whether the arrears can be paid over a 24-month period. The tenant’s business must be viable or the scheme will not apply.
Neither the draft bill nor the code of practice specify in detail how affordability or viability should be assessed. However, an arbitrator may review existing and anticipated business performance of both landlord and tenant since March 2020 and any dividend payments to shareholders. This could involve a review of financial information including contracts, assets, accounts and other potentially confidential business information.
Where parties have concerns about the exchange of commercially sensitive information, they should act early to try and secure appropriate confidentiality or non-disclosure agreements (NDAs) with the other party. Parties should be aware that arbitration decisions will be made public, so there is a risk an NDA might not be sufficient to protect confidential information.
The arbitration scheme is expected to be available from 25 March 2022, when protections currently available to tenants will start falling away. It is therefore crucial that landlords and tenants with outstanding Covid-related arrears plan how they will deal with those arrears before this date.
Mike Kilner is a property litigation consultant at RPC
No comments yet