January 11, 2022
With commercial tenants protected from eviction on the basis of rent arrears caused by the pandemic until 25 March 2022, the government has announced a new commercial rents code of practice. This aims to set out a clear process for dealing with debts in conjunction with the Commercial Rent (Coronavirus) Bill.
The various lockdowns have had a substantial impact on many businesses, particularly in the hospitality, leisure and retail sectors along with their supply chains. Although rent payments are increasing, they still remain below average.
The government has drafted the bill and code of practice in an attempt to save viable businesses and protect the millions of jobs.
The aims of the code of practice
The code is intended to assist landlords and tenants in resolving disputes arising from rent arrears that resulted from businesses being closed or restricted during the pandemic. This will be done by:
- Setting out what will be included in the Commercial Rent (Coronavirus) Bill, to include a new binding arbitration process;
- Defining best practice for those who fall outside of the scope of arbitration;
- Promoting good practice in landlord and tenant relationships, in particular with respect to negotiations;
- Setting out the principles that should guide the landlord and tenant when dealing with pandemic-related rent arrears.
The government’s expectations
The government expects that tenants who are able to pay their rent arrears in full to do so. If they cannot, their first step should be to negotiate with their landlord in the expectation that the landlord will share the burden where they can. Negotiation is encouraged, whether or not the debt falls within the scope of the Bill.
Tenants remain liable for covenants and payment obligations under the terms of their lease unless a new agreement is negotiated with the landlord, or the arbitration process allows for changes.
Any existing agreements should be honoured.
Tenants should ensure that they specify which periods their rent payments cover, with rent due during the pandemic ringfenced and landlords expected to make allowances in respect of this.
The specific dates during which rent arrears can be ringfenced will be sector specific. It is likely that areas such as hospitality and retail likely to be given the longest periods.
The situation for landlords and tenants
Landlords will not be able to evict tenants in respect of non-payment of rent during the period from March 2020 until the end of the ringfencing where their tenants were negatively affected by the pandemic.
Tenants should not breach the terms of their lease and if they do, landlords may have the right under the lease to evict them for that breach.
Tenants should make payments as normal from the end of the ringfenced period.
Where landlords and tenants are unable to reach an agreement regarding payment of rent arrears, the Bill proposes a binding arbitration process. This will be conducted in light of the principles and viability and affordability considerations recommended for negotiation.
The arbitration process will be available for six months from March 2022. It will include a pre-application stage where the landlord or tenant will need to notify the other of their intention to seek arbitration.
Next, an application will need to be made, including proposals for resolving the matter with accompanying evidence. The other side will have 14 days to reply and provide a counter-proposal. The parties can request a hearing or have the matter decided on the evidence.
The evidence needed will include:
- Existing and anticipated debt
- Details of business performance since March 2020
- The tenant’s assets
The arbitrator will be expected to notify the parties of their ruling within 14 days of the hearing to ensure the process is streamlined.
Partner and expert commercial litigation solicitor Alex Lyttle has in-depth experience of dealing with commercial property disputes, to include commercial rent arrears. He can advise you of your options and discuss the best way to proceed if you are experiencing difficulties with commercial rent payments.