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The Commercial Rent (Coronavirus) Bill and Arbitration for Ringfenced Debts

on Monday, 28 February 2022.

Despite the Omicron variant continuing to cause large case numbers across England and Wales, a new Bill is intended to provide a solution to the problem of approximately £9bn in commercial rent arrears due to be outstanding by March 2022.

An Overview of the Commercial Rent (Coronavirus) Bill

The Government's Commercial Rent (Coronavirus) Bill will provide a mechanism for relief from payment of certain rent debts under business tenancies adversely affected by coronavirus, to be available through a binding arbitration process. Subject to legislative approval, it is intended that the Bill will pass on 25 March 2022. The Bill is supplemented by the new Code of Practice for Commercial Property Relationships following the COVID- 19 Pandemic, which was introduced on 9 November 2021.

Which Businesses Does the Bill Apply to?

The Bill will apply to all business tenancies as defined in the Landlord and Tenant Act 1954 (including those leases which have been contracted out of the 1954 Act). This means that the provisions will not apply to licences, tenancies at will, agricultural holdings, tenancies of less than six months and other specific types of lease.

Protection will apply to almost all sums due under a lease, including rent, service charge, insurance rent, interest and any amount drawn down from a rent deposit. However, in order for the Bill to ringfence the sums in question, the tenancy must have been adversely affected by coronavirus. This means it will only apply to sum attributable to a period in which the Government forced that business to close, either fully, or in part.

This means that the maximum protected period for businesses in England will be from 21 March 2020 to 18 July 2021 (or 7 August 2021 in Wales). The ringfenced period runs from 21 March 2020 until the last date restrictions were removed from the business tenant's sector, ignoring periods when that business was able to open partially or subject to restrictions. Either party can make a reference to the arbitrator, and both sides must put forward proposals for payment, supported by evidence. The arbitrator will then make an award based on whether the tenants business is viable, or could be made viable if relief from payment is given, balanced against the solvency of the landlord. The starting point for the arbitrator will be that tenants should pay the full amount owing in full and without delay.

This assessment of viability will be the fundamental question for the arbitrator to consider, however they will have a very wide brief, allowing consideration of any information which the arbitrator considers appropriate, including historic payments made under the lease and the assets and liabilities of the parties, including other tenancies to which they are a party. The default position will be for the arbitrator to make a decision based solely on the documents and evidence submitted to them, however either party is able to request an oral hearing.

Ringfenced and Non-Ringfenced Debts

The current restrictions on the use of forfeiture, Commercial Rent Arrears Recovery and presenting winding- up petitions will remain in force until March 2022, however once the Bill passes into law, these restrictions will be lifted in relation to non-ringfenced debts. For ringfenced sums, a new, comprehensive moratorium will be introduced, covering all possible enforcement measures (including drawing down on a rent deposit and debt proceedings), and this will remain in force for a period of six months or until the date that the arbitration concludes. Tenants would therefore be well advised to settle their non- ringfenced debts before March.

There are myriad criticisms of the Bill, most of which relate to the fact that there is a severe lack of guidance in relation to how the arbitration scheme will work in practice. Absent further comprehensive guidance, both landlords and tenants may be well advised to seek to settle their differences before the Bill passes into law.

For more information on the Commercial Rent (Coronavirus) Bill, Please contact Jack Beeston in our Property Litigation team on 02076650967, or complete the form below.

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