Commercial Rent Market - Road to Recovery

Commercial Rent Market - Road to Recovery

Commercial Rent (Coronavirus) Bill 2022

As we all learn to live with Covid-19 following the removal of domestic restrictions, we also see the removal of certain commercial restrictions.

During the pandemic, together with financial aid, the government introduced a host of temporary measures to assist businesses mandated to close for significant periods. One such measure was the moratorium on commercial evictions and restrictions on Commercial Rent Arrears Recovery (“CRAR”), which ended on the 25 March 2022.

In seeking to manage the potential volume of court actions that might be taken by landlords seeking to recover unpaid rent, the government introduced the Commercial Rent (Coronavirus) Bill (“the Bill”), which received Royal Assent on 24 March 2022. The Bill requires commercial landlords and tenants to enter a legally binding arbitration process to resolve disputes about certain pandemic related rent debts. Eligible tenant businesses remain protected for six months from the date the legislation came into force, during which period arbitration can be applied for, and until the conclusion of an arbitration commenced in that period.

Who and what does it apply to?

To be eligible, tenant businesses will have to meet various criteria, including:

• having a business tenancy to which the Landlord and Tenant Act 1954 applies
• being situated in England or Wales (although some provisions extend to Scotland)
• having been forced to close, in full or part, due to coronavirus regulations
• being a tenant with an otherwise viable business.

Tenants cannot apply for arbitration if they have already paid their arrears; agreed a reduced payment; or, compromised their arrears by way of a Company Voluntary Arrangement (“CVA”).

Arrears eligible for the scheme comprise:

• principal rent accrued between 21 March 2020 and the earlier of 18 July 2021 or the date on which restrictions ended for their sector
• service charges
• insurance
• VAT
• interest for late payments
• amounts drawn down from rent deposits.

Arrears not eligible for the scheme can be pursued by landlords separately through the courts without restriction on forfeiture, CRAR and winding-up petitions.

The arbitration process

The updated Code of Practice for commercial rent published by the government last year specifies that tenants who can pay their arrears in full should do so, and those tenants unable to pay their arrears in full should, in the first instance, negotiate with their landlord in the expectation that they share the burden where they are able to do so.

The arbitration process can be instigated by either party with a letter of notification including a proposal (*1) for settlement of the arrears in line with the new code. The other party will then respond with either their acceptance or a counterproposal. If no agreement is reached, an application for arbitration can be made.

The party not making the application for arbitration will have 14 days to submit their own proposal following which both parties will then have the option to request a public hearing of the arbitration which the arbitrator will seek to conduct within 14 days. If no request is made, the arbitrator will consider the matter based on the evidence provided.

When contemplating the matter, the arbitrator will have to consider principles such as preserving or restoring the tenant’s viability, where it is consistent with preserving the landlord’s solvency. However, they are given a broad power to award relief to tenants including:

• the ability to impose rent deferrals and repayment plans up to a maximum of 24 months
• reducing the amount of the arrears
• writing off the arrears altogether.

Both parties will be notified of the outcome within 14 days of the arbitration hearing and the award will be legally binding. When deciding what award to make the arbitrator will be guided largely by the new code and whichever of the landlord or tenant proposals is more consistent with it.

The arbitrators

Applications to become arbitrators closed on 11 February 2022 and will go through an approval process to demonstrate their suitability to administer the scheme. The Department for Energy and Industrial Strategy (“BEIS”) will publish a list of arbitration bodies shortly.

Why choose Azets to assist in your arrears’ negotiation/arbitration?

If your business is suffering financial distress, you are not alone. At Azets, we have a highly qualified and experienced team of restructuring and insolvency professionals who will:

• provide an initial consultation free of charge and without obligation to explore your business’ situation and work out the best solution tailored to its needs
• use their decades of experience in commercial property matters to help you navigate the negotiation and arbitration process
• act confidentially
• maintain the highest standard of client care
• always be here to listen and act with compassion.

Get in touch

Please contact us today. We have the experience and expertise to help resolve your business’ financial problems.

Landlord and Tenant | Commercial Property | Business Advisory | Viability Review

(*1) Both parties are encouraged to include relevant evidence in support of their proposal for the arbitrator to review.