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24 Feb 2022

Commercial Rent (Coronavirus) Bill changes – Are you ready?

On 25 March 2022, the Commercial Rent (Coronavirus) Bill (“the Bill”) is set to be passed into law, which will introduce an arbitration scheme for dealing with commercial rent arrears that arose as a result of the Government requirement for non-essential businesses to close at various times since March 2020.

On the same day, the moratorium protecting commercial tenants from eviction will come to an end, allowing landlords to forfeit commercial leases for non-payment of rent arrears that are not ring-fenced and protected under the Bill.

We are now weeks away from these changes and it is anticipated that these developments will have a significant impact on both landlords and tenants.

Are you ready for the changes?

The Bill’s passage

In November 2021, the Government announced the Bill to resolve commercial rent debts which arose as a result of the Government requirement for non-essential business to close at various times since March 2020.

Our previous article covered the key takeaways from the Bill and can be read here.

A House of Commons public committee sat four times to examine the Bill between 7 and 14 December 2021.  As part of this process, the committee took evidence from a number of expert witnesses and considered written evidence submitted by a number of organisations, including the Property Litigation Association.

On 20 January 2022, the Government published a briefing report following the introduction of the Bill to the House of Lords on 13 January 2022.

The report contains a useful summary of the passage of the Bill, including the amendments considered by the committee.

The Bill is currently making its way through the House of Lords, having completed the Grand Committee stage on 10 February 2022 and with the Report stage yet to be scheduled.  The Report stage normally starts 14 days after the Committee stage has concluded.

In terms of the amendments to the Bill to date, these include:

  • Clarification over a general rule that the party that has paid the arbitrator’s fees should be reimbursed half the amount unless the arbitrator decides it should be a different proportion (which could be zero)
  • Clarification that apart from any reimbursement of arbitration fees, parties are responsible for their own legal or other costs
  • An amendment to state that any costs incurred in connection with arbitration cannot be recovered under any existing clause in the lease
  • Confirmation that an award giving the tenant relief from payment of a protected rent debt is to be taken as altering the terms of the tenancy in relation to the protected rent constituting the debt
  • Confirmation that neither a tenant nor a guarantor are to be regarded as being in breach of covenant provided that they comply with the terms of an award
  • Confirmation that a person other than the tenant who is liable for the payment of rent is not liable (i) to pay any unpaid protected rent written off by the award or (ii) to pay any sums under the award before they fall due under those terms
  • Clarification on the Secretary of State’s power to apply the provisions in relation to future periods of coronavirus control as applying to closure requirements at any time after 7 August 2021

There are still concerns about how the arbitration scheme will work in practice.  For example:

  • Will there be enough arbitrators to deal with the arbitrations in a timely manner?
  • Will the outcome of the arbitration depend on the arbitrator the parties use and whether the Secretary of State’s guidance changes over time?
  • Are the proposed timeframes realistic?
  • How much information will need to be disclosed about the viability of a business and will parties be required to incur substantial ancillary fees in preparing their evidence?
  • How will the evidence about business viability be tested at a hearing?
  • Will parties subject to multiple arbitrations experience significant disparity between arbitral awards?
  • How detailed will each arbitral award be in terms of setting out the reasons it has been made?
  • How will the appeals process work?

The Government’s impact assessment estimated that 15,500 business would be eligible to use the binding arbitration process, with around 7,500 going to arbitration taking between three to fifteen months to resolve. Given that the parties only have a 6 month window to initiate the arbitration process from commencement of the Act, parties wishing to use it need to be ready to do so and should start preparing their cases in good time.

Commercial rent arrears not protected under the Bill

The Bill only applies to commercial rent arrears which arose as a result of the Government requirement for non-essential businesses to close at various times since March 2020, with a longstop date of 18 July 2021. It does not apply to rent arrears which have accrued before March 2020 or after 18 July 2021 (in England) or to those businesses that were not required to close by the Government, such as offices. Tenants have been protected in relation to those arrears by the moratorium on forfeiture preventing landlords evicting tenants for non-payment of rent. However, that is set to change on 25 March 2022.

If, as expected, the moratorium is lifted, landlords will be able to forfeit leases for non-payment of rent accruing after 18 July 2021 even if the total rent outstanding includes some protected rent arrears under the Bill. They will also be able to forfeit for non-payment of rent in the case of businesses that were not forced to close. Landlords and tenants will need to be prepared for this change in order to plan accordingly. Advice should be sought in advance of the change to see what steps should be taken to prepare for the changes.