The COVID-19 pandemic, and forced closures and lockdowns it caused, has undoubtedly hit many business tenants and commercial landlords hard. Tom Jones looks at the Government’s recently announced draft Commercial Rent (Coronavirus) Bill to see how it will impact business tenants and landlords alike.
On 9 November 2021, the Government outlined its draft Commercial Rent (Coronavirus) Bill (the “Bill”) and accompanying updated Code of Practice for Commercial Property Relationships. It is part of the Government’s ongoing efforts to ease the burden that its forced closures as a result of the COVID-19 pandemic have had on business tenants and landlords.
In summary, the Bill aims to introduce a ringfence for rent debts built up by business tenants as a result of mandated business closures during the pandemic, and it aims to establish a new arbitration process to find proportionate solutions for both landlords and business tenants.
The Bill is aimed at preserving or restoring the viability of the business tenants so far as that is consistent with preserving the landlord’s solvency.
The Bill covers “protected rent debt” which is rent due under a tenancy by business tenants that were adversely affected by having to close their premises or business (in whole or in part) as a result of COVID public health regulations. The Bill does not apply where a business was not forced to close.
The period the Bill covers depends on the sector or nature of business that the tenant carries out. The broad rule is that the Bill applies from 21 March 2020 until the last date restrictions were removed from a tenant’s business sector. For instance, for a café in England the ring-fenced period ran from 21 March 2020 to 18 July 2021 (when all restrictions ended). The Bill does capture rent periods when a tenant was able to partially trade, but what is not clear at the moment, from the Bill or the accompanying Code, is how the Bill approaches the numerous different periods of varying restrictions (from the initial full lockdown, to 2020’s summer re-opening). The Bill is worded so that it can apply to any future periods of coronavirus control/restrictions.
The protected rent debt will then be subject to a binding arbitration procedure. If a landlord and tenant are unable to resolve a dispute in relation to a protected rent debt, then reference may be made by either party to arbitration.
Business tenants must demonstrate to an arbitrator that they are, or can be, a viable business, and that relief from payment or another similar solution of protected rent debt will preserve (or restore and preserve) that business. However, the preservation of a business tenant’s business should not come at the expense of the landlord’s solvency.
If the arbitrator does not agree that the business is viable, then he or she must dismiss the arbitration. This will then bring an end to the moratorium on enforcement and the landlord can proceed without restriction.
The arbitrator’s fees are initially paid by whichever party makes reference to arbitration; however, the arbitrator must also make an award requiring the other party to reimburse the applicant for half of the arbitration fee (or such other award as they consider appropriate). We do not yet know what fees an arbitrator will be able to charge. It is understood these may be capped, with the cap depending on the sums in dispute.
The “Code of Practice for Commercial Property Relationships Following the COVID-19 Pandemic” has been updated to reflect the provisions of the Bill. Further guidance to arbitrators will be published once the Bill has passed through Parliament, but in the interim, arbitrators should note the principles of the Code.
The Code is non-binding but expands on and provides guidance on how to approach the provisions in the Bill.
The Bill only covers business tenants that were mandated to close and does not cover the knock-on effect of other businesses. For example, the bill will cover restaurants that were forced to close, but will not cover the restaurant’s suppliers, or businesses further along in the supply chain. Despite this, the Code strongly recommends that where secondary businesses found it uneconomical to trade during times where their client businesses were forced to close because of restrictions, that the principles of the Code should be used to resolve any rent arrears disputes between the tenants and landlords.
On 31 March 2021, the current moratorium will end. The Bill is intended to provide some protection, and a process, to deal with the unpaid rent that has accrued in the preceding 24 months.
It may be a useful tool for those situations where a tenant was forced to close, and the rent arrears continue to be outstanding, with no agreement reached. However, it may well be the case that there are very few cases where a landlord has allowed the situation to remain unresolved throughout. The Bill cannot be used to re-open previous settlements or agreements. This leaves a large number of landlords and tenants outside of the scheme, with no protection or guidance on how to resolve outstanding disputes.