This marks what will likely be the end of a series of legislative interventions from the Government over the past two years designed to prevent a cascade of tenant insolvencies during a truly unique time.
With much being said, and written, about the Commercial Rent (Coronavirus) Act 2022 (the Act), below are some important takeaways for landlords and tenants to consider as we enter this new phase.
1.
From 24 March 2022, a legally binding arbitration process is available for eligible commercial landlords and tenants who have not already reached an agreement in relation to sums covered by the new legislation. The aim is to resolve disputes about certain pandemic-related rent debts and help the market return to normal as quickly as possible.
2.
The Act only offers protection for so-called 'ringfenced' debts. These are arrears of annual rent, service charge, insurance rent, VAT, interest and amounts drawn down by a landlord from a tenant's rent deposit in relation to the 'protected period'.
3.
The 'protected period' is any period during which the tenant's business was subject to a Government-mandated closure requirement (ignoring any ability of the tenant to partially open). Therefore, the maximum period of protection is from 21 March 2020 to 18 July 2021 in England, and 21 March 2020 to 7 August 2021 in Wales. The protected period varies depending on what type of business the tenant was carrying on.
4.
Tenants who were not subject to a Government-mandated closure will receive no protection from the Act.
5.
Sums which fall outside of the protected period are known as 'unprotected debts'. Accordingly, following expiry of the moratorium for unprotected debts from 25 March, landlords will be able to use all the enforcement options available to them in relation to unprotected sums. This includes forfeiture, winding up or bankruptcy proceedings, debt proceedings and commercial rent arrears recovery. Tenants would therefore be well advised to clear these unprotected debts as quickly as possible.
6.
In relation to protected debts, a new moratorium has been introduced which will last for 6 months from the Act passing into law, or until the date of an arbitrator's award. This will prevent landlords from undertaking any enforcement action in respect of the protected debt, including drawing down on a tenant's rent deposit, until the moratorium is lifted or the arbitrator makes their award.
7.
Either the landlord or the tenant can make a reference to the arbitrator, and there is a strict procedure which must be followed.
8.
The arbitrator's award will be based upon two principles. The first principle is that the award should be aimed at preserving or restoring the viability of the tenant's business so far as is consistent with preserving the landlord's solvency. The second principle is that the tenant should pay all sums due where this does not conflict with the first principle.
9.
The arbitrator will consider the financial documents produced by both the landlord and tenant when considering what award to make in line with the principles, including the tenant's business performance since March 2020, the assets and liabilities of the parties, rental payments made during the protected period and the impact of coronavirus on the tenant's business.
10.
Each party will be required to pay their own costs of the arbitration, and will split the arbitrator's fees equally. The arbitrator can however order one party to pay more of the arbitrator's costs where they have found them to have acted unreasonably.
Given the uncertainty surrounding the arbitration process, and the fact that the process is likely to put an even greater strain on the relationship between landlord and tenant, parties would be well advised to try again to reach an agreement in relation to protected debts. However, if no such agreement is possible, the arbitration process does offer a lasting solution to what has been an unprecedented and enormously testing time for all.