The Commercial Rent (Coronavirus) Act 2022, known as “the Act”, aims to support the resolution of commercial rent debt accrued during the pandemic, known as the ‘protected rent period’, between March 2020 and August 2021. The Act establishes a binding arbitration system to help landlords and tenants move from dispute to resolution together. This legislation only applies to premises in England and Wales.
Where they can afford to do so, the Act states that a tenant should meet their obligations under their lease in full, including the payment of rent. It makes clear that a tenant can’t keep the doors of their business open if it comes at the expense of the landlord’s solvency whilst aiming to balance the effects of the pandemic on otherwise viable businesses. However, tenants should not have to take on more debt or restructure their business in order to pay rent within the ‘protected rent period’, and as such, a tenant’s viability will be assessed accordingly. The Act expects openness, transparency and collaboration between landlords and tenants and encourages the parties to negotiate fairly to reach a proportionate balance (where possible) before instigating the Arbitration process.
Who is eligible?
There are four sets of criteria required in order to be eligible to go to Arbitration.
- The first is having a ‘business tenancy’. This includes tenancies which are both inside and outside the Landlord and Tenant Act 1954.
- Second, the parties have tried unsuccessfully to settle their debts via negotiation. If any existing agreements have been made, these should continue to be honoured.
- Thirdly, the tenant shouldn’t be subject to a CVA, IVA or any sanctions related to protected rent debt.
- Lastly, the rent being disputed needs to be considered ‘protected rent debt’.
Protected rent debt is debt from unpaid rent under a business tenancy which was adversely affected by a specific coronavirus restriction and where that rent is attributable to the occupation of property during a protected period. Within this, ‘rent’ has a broad definition, including the amount payable for possession and use of the premises, service charge, insurance and interest due on the unpaid amounts. The protected rent period is between 21 March 2020 and 18 July 2021 (for England) or 7 August 2021 (for Wales). Therefore, if a business was subject to a statutory closure requirement for any period within these dates, then it can be considered the tenancy was adversely affected by the pandemic.
What can be awarded?
Any Arbitration Award offering relief (if any) from protected rent debt can be one or more of:
- writing off the debt (in whole or in part)
- giving the tenant time to pay the debt (in whole or in part) usually within two years of the Award, including by way of instalments;
- and/or reducing or writing off any interest payable by the tenant under the terms of the tenancy in relation to all or part of the rent debt.
Unlike the Arbitration Act 1996, the Commercial Rent (Coronavirus Act) 2022 is still very much ‘in its infancy and a work in progress. Many of the Act’s inequalities and pitfalls are still to be recognised as it aims to build on the guidance outlined in the Commercial Rent Code of Practice. No doubt, this Act will be subject to change as both landlords and tenants recover from the struggles of the pandemic on their business operations and their subsequent liabilities. The Act is by no means an all-encompassing piece of legislation which will right the wrongs for parties unfairly affected by the pandemic. However, it does encourage and facilitate open negotiations between landlords and tenants in the first instance and provides an additional mechanism through binding Arbitration for situations where amicable agreements on rent arrears cannot be reached. Although this Act is welcomed by many, the process fundamentally remains convoluted compared to the well-established Arbitration Act 1996 and, to many, remains a costly process of dispute resolution to pursue.
For more information, please visit GOV.UK.