Mandatory Arbitration Process Unveiled for Commercial Rent Arrears

The government introduced its long awaited Commercial Rent (Coronavirus) Bill (“the Bill”) and Code of Practice (“the Code”) on 9 November 2021 for issues relating to commercial rent arrears as a result of the pandemic.

At the beginning of the pandemic, in order to protect businesses forced to close during the pandemic, the government imposed a moratorium on commercial landlords evicting commercial tenants who were unable to pay their rent. Alongside, restrictions stopped landlords seizing goods in lieu of rent, and businesses in rent arrears were protected from insolvency proceedings by their landlord.

The Bill and Code apply to all commercial leases held by businesses with rent arrears caused by the impact of the pandemic within a ring-fenced period and apply across the United Kingdom. The main purpose of the Bill is an introduction of statutory arbitration between landlords and tenants in relation to a debt of rent arrears. “Rent” is defined in the Bill as any amount payable by the tenant to the landlord and includes not only the rent but also service charges and interest on any unpaid amount.

“This is all focused on supporting the wider economy by encouraging landlords to look at the longer-term benefits. Landlords are being encouraged to reach a negotiated settlement, rather than issue proceedings, if that will help protect the viability of the tenant’s business,” said property law expert Polja Atkins of solicitors Longmores Solicitors in Hertford.

“But this isn’t a blank cheque for tenants wanting to withhold rent on commercial premises: if they are able to pay, they are expected to do so.  Also, it relates to specific ring-fenced periods and sectors. Where a business was able to continue trading, such as pharmacies, they will not be covered by the proposed legislation, although each situation will be judged on a business-by-business basis, as not all tenants will fit neatly into the sector-related time restrictions outlined in the code.”

Arbitration will apply only to arrears which relate to periods of mandated closure, meaning that where there has been any gap in payment it is important that landlord and tenant are clear about the period that any subsequent rental payment relates to. If a date within the ring-fenced period is not specified for any such payment, then it will be treated as outside the scope of the arbitration process.  However, the government is encouraging use of the Code by landlords in resolving all rent arrears, whether or not they fall inside the scope for arbitration, rather than by issuing proceedings.

The Commercial Rent (Coronavirus) Bill will formalise the code of conduct by setting out a binding arbitration process for rent arrears accrued during the pandemic where tenants are unable to reach a negotiated agreement with the landlord. To allow time for the legislation to be introduced, protection from eviction for commercial rent arrears will remain in place until 25 March 2022.

Here to Help

If you need guidance on lease extensions or other property dispute issue, please contact Polja Atkins, Associate of CILEX in the Property Disputes team.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.