Under the Coronavirus Act 2020 tenants of commercial premises have been protected from eviction where they have not paid rent under their leases. That protection will end on 25 March 2022.
A mountain of arrears of rent has accumulated during the pandemic and in an effort to avoid a cliff edge where tenants face forfeiture for arrears once the protection ends, the government promised a solution.
A new bill and code have been announced which is aimed at resolving the commercial rent arrears conundrum.
The Bill (Commercial Rent (Coronavirus) Bill publications - Parliamentary Bills - UK Parliament) will now be subject to parliamentary approval and may be subject to change, but its draft gives us an idea of the direction of travel the government are proposing.
From 25 March 2022, commercial landlords and tenants who have not already reached an agreement in relation to the payment of rent debts (as opposed to rent going forward), the bill introduces a legally binding arbitration process.
Section 2 of the bill confirms that the definition of ‘rent’ includes occupational rent, service charges, interest, VAT and insurance.
The arbitration process will come into force from the 25 March 2022, and it only relates to commercial rent arrears that arose (in full or in part) owing to the mandatory closure ordered by the government:
The window in which parties can apply for arbitration will be 6 months from the date legislation comes into force.
The maximum time frame that can be given to tenants to repay the arrears that have accumulated will be 24 months.
Crucially, as presently drafted the bill does not apply to all commercial premises. The government has provided a non-exhaustive list of businesses which includes pubs, gyms and restaurants (see Annex A of the Code Code of practice for commercial property relationships following the COVID-19 pandemic - GOV.UK (www.gov.uk))
The government has also announced that it is going to close out a number of the landlords “go to” options that were not previously prohibited by the Coronavirus Act 2020.
The bill will temporarily protect commercial tenants from new and ongoing debt claims and from bankruptcy/winding up petitions in the courts in relation to rent arrears which accrued during the Covid-19 pandemic (regardless of whether Judgement has been obtained or not). The government has also announced that landlords will not, for the time being, be able to now call on rent deposits to pay arrears.
The bill is at an early stage, and we expect it to be tweaked, but not substantially altered.
If you have any more questions or would like more information regarding the Commercial Rent (Coronavirus) Bill, you can contact our Property Litigation Team below.