Landlord and tenant arbitration to tackle rent arrears due to Pandemic
The government has published its Bill 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.
What we can do to help
A key part of the legislation is that the tenant will need to be assessed as to its viability. See the relevant section of the bill. (1) In assessing the viability of the business of the tenant, the arbitrator must, so far as known, have regard to— (a) the assets and liabilities of the tenant, including any other tenancies to which the tenant is a party, (b) the previous rental payments made under the business tenancy from the tenant to the landlord, (c) the impact of coronavirus on the business of the tenant, and (d) any other information relating to the financial position of the tenant that the arbitrator considers appropriate.
Arbitrators that are likely to be brought in initially are not necessarily going to be experts in the field of business viability and forecasting as they are usually lawyers, surveyors or negotiators. As such, turnaround experts and insolvency practitioners are likely to be able to make better assessments of viability.
If you need us to help you assert that by being forced to pay the back rent accrued over the Covid period will threaten your viabilty then get in touch on 0800 9700539.