Since Elizabeth Taylor’s blog on the arbitration scheme to deal with unpaid rent arrears as originally outlined in the Commercial Rent (Coronavirus) Bill at the end of 2021, the bill received Royal Assent on 24 March 2022.
In brief, the Act deals with how landlords and tenants of commercial premises should conduct themselves in relation to rent arrears’ negotiations on debts that were accrued during the pandemic, known as a “Protected Debt”. If landlords and tenants cannot reach agreement over unpaid rent, the matter can be referred to the arbitrator, but this must be done by the deadline set out in the legislation, namely 24 September 2022.
Under Part 1 of the Commercial Rent (Coronavirus) Act 2022: The protected rent debt defined as the debt under a business tenancy, consisting of unpaid rent, is protected if:
- The tenancy was adversely affected by Covid, in other words, either the whole or part of the business was required to close during the relevant period March 2020-July 2021; and
- The rent was accrued within the protective period
Landlords and their tenants can negotiate and reach an agreement, such as relief from payment. This could include-
- Writing off whole/part of the debt
- Giving time to pay; or
- Reducing any interest that would otherwise be payable
Under Part 2 of the legislation, the landlord may refer the matter to arbitration within the period of six months from 24 March 2022. in order to make a referral you have to demonstrate that you were unable to agree with one another about how the protected rent is to be repaid.
There is a huge tactical benefit in referring this to arbitration. If unsuccessful, a tenant will lose the legal fees spent on the process (which may well be insignificant compared to the sums at stake). It also means that a landlord's ability to bring proceedings to enforce the unpaid rent arrears is necessarily deferred while the arbitration process is underway. Even if you are unsuccessful in arbitration, there is a long period during which the landlord cannot really do anything about the unpaid rent.
As it stands, you have until 24 September 2022 to refer the matter to arbitration. However, the Act does contain an element of “future proofing”. This period may be extended by regulations.
Under Section 28 there is a power for the Secretary of State to apply again in relation to rent debts and business tenancies in respect of closure requirements.
In summary:
- This Act is quite radical and landlords and tenants should familiarise themselves with it
- It provides arbitrators with extraordinary powers to reduce rent arrears, although it is limited in scope because the business needs to fall within the definitions under the Act
- You need to act quickly in order to meet the current deadline of 24 September 2022.