Landlord and tenant arbitration to tackle rent arrears due to Pandemic
The government has published proposals on how it expects rent arrears that have built up over the last 2 years to be addressed. The Commercial Rent (Coronavirus) Bill will enable either landlords or tenants to apply to an arbitrator to settle disputes relating to arrears that have accumulated during the Covid pandemic (as defined by the legislation). Arrears that are eligible (ring-fenced) are those that have accrued from March 2020 to July 2021. The arbitrator will have discretion to write off arrears owed by tenants and/or to defer payment. They will also be able to restrict remedies available to landlords to collect rent owed. The finding of the arbitrator will be binding on both parties.
Who will be able to go to arbitration?
Only businesses that were forced to close due to the pandemic will be eligible for the scheme.
- Hospitality & nightclubs
- Non-essential retail
- Garden centres
- Personal care including hairdressers
- Hotels and tourist accommodation
- Sport & leisure
- Theatres, cinemas & large event venues
This will be difficult for businesses that relied on footfall to essential retail or office based businesses that have been impacted by the lockdowns. In addition, the arbitration scheme will only be available to businesses that cannot pay or were simply not viable during restrictions. In otherwords, large businesses with cash reserves will not be eligible for any sort of relief. The generosity of the Furlough Scheme and government backed loans probably explains this thinking. The important thing to note here is that the viability test is simply that if the business gets this relief from the rent arrears then it is viable. So being insolvent will not make you eligible for the scheme. The landlord could argue that the business is insolvent and so not eligible for the scheme. Mind you, if the business is insolvent it is unlikely that the landlord will be able to recover any arrears of rent but it would mean that they should be able to regain possession of the premises quickly.
Other points to note
- In making their decision the arbitrator is to consider the viability of the tenant’s business albeit this should not be “at the expense of the solvency of the landlord”.
- Landlords will not be able to call on any guarantor for the lease for the rent that falls in the eligible period.
Landlords who have issued court proceedings in relation to ring-fenced debt before 10 November 2021 are entitled to continue with those proceedings in the usual way. Any proceedings issued on or after 10 November 2021 will be stayed until the later of six months from the date this legislation is enacted and the date any arbitration proceedings are concluded. If the legislation is enacted in March 2022 as proposed, the moratorium on court proceedings for ring-fenced debt will therefore effectively be extended to August 2022 at the earliest.