As many businesses fall back into the swing of the ‘new normal’, a concern for some operating from rented premises may be dealing with arrears accrued during the lockdown period. Many will be aware that the restrictions previously providing protection for commercial tenants came to an end on 24 March 2022, being replaced with a binding arbitration process to deal with rent arrears accrued during periods of enforced closure.
Whilst the position remains that tenants who can pay any rent arrears in full should do so, government guidance recently introduced emphasises that rent debts accrued as a result of the pandemic should not force an otherwise viable businesses to cease operating. The Commercial Rent (Coronavirus) Act 2022 (“the Act”), together with the associated Code of Practice, is now in force and focuses upon compelling landlords and tenants to share the financial burden of arrears accrued, whilst balancing their respective interests.
Where tenants are unable to pay outstanding arrears as a result of forced closures during the pandemic, they should in the first instance attempt to negotiate with their landlord; if agreement cannot be reached, then the binding arbitration scheme introduced by the Act, which applies to all tenants in occupation under a business lease, should be considered.
Protection under the Act will only apply to rent falling due within the ‘protected period’ and will not apply where an agreement over payment has been reached. The protected period started on 21 March 2020 and ended on the date where specific restrictions were last removed for the relevant sector (in England, 18 July 2021 at the latest). Where no agreement can be reached in respect of rent falling due within the protected period, either party is able to commence arbitration to determine whether there is a protected rent debt and, if so, whether the tenant should be given relief from payment and on what terms.
It is crucial to note that there is a six-month window to refer any matters to the new arbitration scheme, which expires on 23 September 2022. Unless this period is extended, absent of a referral by this date, the landlord will be at liberty to resume its full range of enforcement options. If a referral is made prior to this date, then the tenant will be protected until the arbitration has concluded.
During the moratorium period (24 March 2022 – 23 September 2022) a landlord is unable to enforce a protected rent debt and therefore cannot (amongst other remedies) issue a claim, use the Commercial Rent Arrears Recovery process, forfeit a lease or, in some circumstances, present a winding-up or bankruptcy petition in respect of such debt.
The aim of the Act and its associated Code is to place additional pressure on landlords and tenants to engage in serious negotiations in respect of protected arrears; indeed, the risk in not doing so is that both could be subject to an award imposed upon them which, in turn, will be published, risking their financial affairs being made public.
If you have any queries related to this, or other Commercial Premises issues, please get in touch with our Dispute Resolution team.