The Act ringfences ‘protected rent debts’ which were accrued by businesses who were legally forced to close during the pandemic and requires the landlord and tenant to work together to agree terms for repayment. If no resolution is possible, the matter can then be referred to the new and binding arbitration process.
The Act tends to be more balanced in that tenants are reminded that they should aim to meet their rental obligations, including repayment of arrears, where it is affordable for them to do so. Preservation of the tenant’s business is not intended to come at the expense of landlord’s solvency.
The commencement of the legislation comes following the end of the moratorium period which had afforded protection from eviction to commercial tenants. Now that the moratorium period has ended, commercial landlords are able to revert to forfeiting commercial leases for non-payment of rents that are not ring-fenced under the Act.
Debts which fall outside of the scope of the Act remain payable in full (subject to any restrictions on forfeiture, CRAR, statutory demands and winding up petitions).
Is my sector included?
The Act applies insofar as any business which was mandated to close during the pandemic, for example:
- Restaurants / bars / cafes
- Retail (inclusive of supply chains)
What is a ‘protected rent debt’?
The definition of ‘protected rent debts’ under the Act extends to include rent or service charge, late payment interest, and insurance rent which fell due:
- Under a business tenancy (per the Landlord and Tenant Act 1954 definition); and
- During a period when under Covid-19 regulations the tenant was mandated to close its premises or cease trading whether in whole or part, including exceptions such as non-essential shops being allowed to open for collections, or where restrictions were eased but not entirely lifted such as requirements for eateries to restrict table booking size.
The definition further includes a requirement for tenants to top-up rent deposits where the landlord has been forced to draw down on the deposit to cover rent debts accrued during the ‘protected period’.
What is the ‘protected period’?
The protected period for England, began 21 March 2020 and lasted until 18 July 2021, including the last day on which restrictions were placed upon the tenant’s sector.
Tenants who were able to temporarily reopen during summer 2020, and then forced to re-close are able to treat the whole of the period through to the eventual reopening again in 2021, as the protected period.
The protected period includes time in which any “specific coronavirus restriction” was applied to the business. This includes restrictions on the number of households and size of parties in the hospitality sector, for example.
Rent debts accrued at any time outside of the protected period will not be included.
The Act does not apply to tenants who voluntarily closed during the protected period.
Code of Practice
Alongside the commencement of the Act there was introduced a revised Code of Practice providing guidance as to how landlords and tenants should resolve Covid-19 related commercial rent disputes, with further guidance relating to how the parties should negotiate, giving consideration to the following: –
- Transparency and collaboration
- A unified approach
- Act reasonably and responsibly
- A swift resolution
Whilst the Code of Practice is supplementary to the Act and is voluntary, it is a useful tool for commercial landlords and tenants in navigating these unusual circumstances. It is therefore encouraged for any lingering arrears arising from the mandated closures inflicted by the pandemic.
The Code of Practice is also directed to continue to be a useful framework for all commercial rent debts, and not just protected rent debts falling within the scope of the Act.
In cases where landlords and tenants are not able to come to an agreement either party may elect to refer the issue to the binding arbitration scheme. There is however no obligation on commercial landlords and tenants to negotiate rent arrears accrued during the pandemic by way of this new scheme.
The arbitration process is quite involved and is time consuming, however.
Following the steps in the arbitration process will ultimately result in the arbitrator making an award within 14 days of the arbitration hearing. Such award will be legally binding on the parties.
The arbitration scheme cannot be used to re-open any earlier concessions or settlement agreements between the landlord and tenant.
If the landlord commenced court proceedings on or after 10 November 2021, the tenant has the right to request a stay in those proceedings, pending arbitration.
If you are a commercial landlord or tenant who is continuing to address rent arrears accruing during the pandemic, we are able to advise on effectively resolving this dispute.
If you require advice, please contact our Dispute Resolution team on 0115 910 6212 or email email@example.com.