This guide was co-authored by Bobby Cheung, Trainee Solicitor, London.
The UK Commercial Rent (Coronavirus) Bill was published on 9 November 2021 and has been attracting a large amount of commentary ever since.
Why so much interest?
The Bill sets out the long-awaited details of the UK Government’s proposal to introduce a scheme of arbitration to deal with disputes over non-payment of commercial rent during the height of the COVID-19 pandemic.
We were fortunate to have the opportunity to discuss the details of the new scheme in our webinar with Nicholas Trompeter QC on 11 November 2021 (and if you missed it, you can view the webinar here).
We will be watching developments in this area closely going forward, and for now, scroll down for our A-Z guide of the key points you need to know about the scheme.
We hope you find this a useful summary of the current position, and if you do want to know more then please don’t hesitate to get in touch with our real estate litigation team.
In certain scenarios, the arbitrator must dismiss the reference by default:
- The reference must be dismissed if the parties have agreed the matter of relief from payment before the reference was made.
- The reference must be dismissed if it does not relate to a business tenancy.
- The reference must be dismissed if it does not relate to a protected rent debt.
- The reference must be dismissed if the tenant’s business is not viable (and granting relief would not make it become viable, either).
If the arbitrator decides to make an award, they must consider the proposals that the parties have put forward and base the award on the one that is consistent (or more consistent than the other) with the arbitration principles (scroll down for more information about these).
Note that if the responding party does not make a proposal, the arbitrator will decide the award on the basis of the applicant's proposal alone.
The award can grant the tenant relief from payment; extra time to pay the debt (up to 24 months); or decide that the tenant is not entitled to relief.
The applicant must pay the arbitrator’s fees before the arbitration takes place.
If the arbitrator does not dismiss the reference and makes an award, then the responding party will be ordered to reimburse half (or more) of those fees. However, the parties must meet their own legal costs.
The arbitrator must have regard to the following principles when making the award:
- It should be aimed at preserving, or restoring the viability of the tenant’s business.
- At the same time, it must look to preserve the landlord’s solvency and ensure that the tenant should meet its obligations for payment of the rent as far as the viability of its business allows.
- The arbitrator is also tasked with identifying and disregarding anything done by either party to manipulate their financial affairs to improve the likelihood of a favourable award.
Landlords will be prevented from presenting a bankruptcy petition against tenants who are individuals if the demand for payment relates to a protected rent debt and was served on the tenant between 10 November 2021 and the end of the moratorium period.
The scheme will only apply to business tenancies within the meaning of Part II of the Landlord and Tenant Act 1954. Broadly speaking, this means that premises in question are occupied for the purpose of the tenant’s business.
This definition also means that the scheme will not apply to occupational licences.
If some of the rent arrears can be attributed/apportioned to a period of tenant occupation outside the protected period (e.g. June quarter rents after 18 July 2021), the landlord will still have the right to claim for the unprotected amount.
CRAR (or Commercial Rent Arrears Recovery) cannot be used to enforce payment of a protected rent debt until the end of the moratorium period.
If a claim for recovery of a protected rent debt was started on or before 10 November 2021 but judgment was not given before that date, then no action can be taken to enforce the judgment until the end of the moratorium period.
If a claim for recovery of a protected rent debt is started on or after 10 November 2021 then either party (but in reality the tenant) can apply to the court to stay the proceedings. The court must then grant the stay, unless there is reason why the Act does not apply (e.g. there is no protected rent debt).
The stay will apply until the end of the moratorium period.
There is currently no provision in the Bill to restrict the enforcement of judgment debts based on rent arrears claims that were concluded before 10 November 2021.
Landlords will be unable to exercise a right of forfeiture until the end of the moratorium period.
Note that the current restriction on forfeiture contained in the Coronavirus Act 2020 will continue until March 2022.
An important provision for tenants who were permitted to carry on limited trading activity during the relevant periods of business closure. Having done so will not mean they are unable to claim that their business was not adversely affected by coronavirus.
The period during which several landlord enforcement options will be suspended in relation to protected rent debts.
It begins on the date the Act comes into force and ends on the last day a reference to arbitration could be made (i.e. six months after the commencement date), or at the end of the arbitration.
An oral hearing must be held if one or both of the parties want one and it must be held within 14 days of the request being made.
The requesting party must pay the hearing fee. If both parties request it, the fee must be split equally. Unusually, for an arbitration, the hearing will be held in public unless both parties agree it should be held in private.
An important part of the scheme. A reference to arbitration must include a resolution proposal from the referring party. The responding party also has the right to reply with a proposal of their own, within 14 days.
Further and amended proposals can then be exchanged, each setting a new response time of 28 days.
The period in which protected rent debts will be guarded by the scheme. In most cases, the period will run from 20 March 2020 to 18 July 2021 (England) or 7 August 2021 (Wales).
But if the restrictions on the business operated by the tenant ended any earlier, then the protected period will end on the earlier date too.
The all-important definition. It means rent that fell due when the tenancy was “adversely affected by coronavirus”. It must also have fallen due during a “protected period” when the tenant was in occupation of the premises.
An amount paid by the tenant to the landlord in exchange for possession and use of the premises, whether described as rent or not. The definition also includes service charge, plus interest and VAT payable on both.
Insurance costs incurred by the landlord are also included, as they fall within the definition of service charge.
Landlords will be unable to make deductions from rent deposits in respect of protected rent debts until the end of the moratorium period.
If a landlord makes a deduction from the rent deposit before the commencement of the Act, they will still be unable to require the tenant to replenish it until the end of the moratorium period.
The arbitrator will have broad powers. If he or she decides the tenant is entitled to relief they can write off all or part of the debt; give the tenant additional time to pay; or reduce or write off interest.
The applicant must first inform the other party of their intention to refer. The other party then has 14 days to respond.
The reference can then be made 14 days after the date of the response, or if no response is received, 28 days after the notice of referral.
The reference must be made to an approved arbitration body (details to be confirmed at the time of writing) but will be unable to proceed if the tenant enters into a CVA (company voluntary arrangement), IVA (individual voluntary arrangement) or compromise agreement (Companies Act 2006) relating to the protected debt.
The arbitrator must make the award as soon as reasonably practicable and within 14 days of an oral hearing (unless extended by agreement between the parties or if the arbitrator thinks an extension is reasonable).
If there is a dispute over a payment of a protected rent debt, either the landlord or the tenant can refer the matter to arbitration. But they must do so within six months of the day when the Act becomes law. However, the government will have the option of extending the time limit.
Landlords will be prevented from presenting a petition to wind up a tenant company during the moratorium period unless they are owed a debt by the company which is not a protected rent debt.
Any written statement given to the arbitrator must be supported by a statement of truth.