The Bill has finally landed but how will it work in practice?
The Commercial Rent (Coronavirus) Bill (the “Bill”) has finally landed, with a mechanism aimed at resolving the backlog of commercial rent arrears that fell due during the coronavirus pandemic. Landlords have been unable to take enforcement action for overdue commercial rents since the start of the pandemic, with prohibitions in place preventing forfeiture, the use of commercial rent arrears recovery (CRAR) and winding up petitions until the end of March 2022.
What does it mean?
The Bill sets out a binding rent arbitration scheme to determine the amount payable by tenants with commercial rent arrears relating to periods of coronavirus-related closure and business restrictions during the pandemic (known as "protected rent debt"). "Protected rent debt" is limited to rents that fell due between 21 March 2020 and 18 July 2021 (in England) or 7 August 2021 (in Wales); although for some retailers in England it is likely to be earlier – specifically, 12 April 2021 - when non-essential retail was allowed to re-open.
The scheme will not benefit everyone equally. Office-based businesses, who chose to close their doors in response to guidance to "work from home" and who were otherwise not obliged to do so will not be able to benefit. The scheme will, therefore, favour those who were arguably worst affected by the pandemic (such as the retail and hospitality sectors).
Also, as currently drafted, the legislation provides that where landlords and tenants were able to reach a compromise, these "agreements" will fall outside of scope of the Bill and would not be bound by the arbitration process. However, the Bill does not presently offer a definition of ‘agreement’, which could lead to disputes between parties, especially where agreements were informal or not documented at all.
Once the Bill is in force (expected to be 25 March 2022), a six month moratorium period will come into effect preventing forfeiture, winding-up, CRAR, and drawing on rent deposits for protected rent debts. Any debt proceedings can also be stayed until the arbitration has run its course.
However, for all other overdue commercial rent, including rent falling due now, there is currently nothing it seems to stop landlords from continuing with their pursuit of debt claims, or even drawing down on rent deposits for non-protected rent. The remaining suite of options usually available to landlords pre-pandemic (including forfeiture, CRAR and winding up) will also become available again for non-protected rent at the end of March.
Where referrals are made under the Bill for arbitration in relation to "protected rent debts", the arbitrator will make an award aimed at preserving the viability of the business of the tenant, while preserving the solvency of the landlord. However, no award will be made where the underlying business of the tenant is not considered viable. Overall, the Bill aims to encourage parties to reach a compromise or, failing that, a determination through the arbitration scheme. However, while it continues its passage through Parliament, the Bill remains subject to change.
This article was first published in CoStar and can be read online here.