Approaching the end of the arbitration scheme

Birketts’ Ian Crowe and Charlotte Wormstone discuss the options available when the current moratorium period ends on 23 September 2022 (the Moratorium Period) and the ability to refer to arbitration is therefore no longer available.

The current Moratorium Period effectively prevents enforcement to recover Protected Rent Debt (as defined in section 3 of the Commercial Rent (Coronavirus) Act 2022 (the Act).  When the Moratorium Period is lifted, the usual enforcement options are made available once again to landlords in relation to Protected Rent Debt.  The Government has not yet announced any intention to extend the Moratorium Period, but it can do so by way of regulation from the Secretary of State.

We previously published an article on the Act and specifically the new arbitration scheme, introduced to deal with COVID-19 commercial rent arrears.  You can read that previous article using the following link here.

I do not want to refer to arbitration, what are my options?

Assuming the rent debt in question is a Protected Rent Debt under the Act, options are limited until the current Moratorium Period ends.  Once the Moratorium Period ends, and provided there has been no referral to arbitration under the Act, the following remedies to recover Protected Rent Debt will be available to the landlord:

1. Issue Court proceedings;
2. Exercise the Commercial Rent Arrears Recovery process;
3. Forfeiture;
4. Draw down on a rent deposit and request top-up by tenant (in the event draw down of a rent deposit (or part thereof) was used against rent arrears prior to the Act, it is now again possible to demand that the tenant tops-up the rent deposit to the appropriate amount);
5. Serve a statutory demand or, where a demand has previously been validly served, present a winding up petition against a tenant that is a corporate entity provided the requisite period has passed;
6. Serve a statutory demand or (where a demand was served on or after 10 November 2021) present a bankruptcy petition against a tenant that is an individual, provided the requisite period has expired; or
7. Enforce already acquired money judgments.

Each set of circumstances will be unique, whether you are a landlord or tenant, and so it will be beneficial to consider the options mentioned above alongside the commercial practicalities of your particular situation.  We can help you to explore your available options and provide you with a strategy most likely to achieve your required outcome.

I want to refer a matter to arbitration

As noted above, the current deadline by which parties can refer a matter to arbitration under the Act is 23 September 2022.  An applicant must give up to 14 days’ notice to the other party of an intention to refer a matter to arbitration.  Thereafter a further 14 days’ must be allowed to pass, following receipt of the response before the reference to arbitration is made.  Consequently, if you still wish to refer to arbitration you should move quickly and consider doing so no later than mid-August 2022.

I am already involved in arbitration, what happens now?

Where parties have been referred to arbitration under the Act, the Moratorium Period will remain in place until the day the arbitration concludes.  An arbitrator’s award will detail the outcome, which is legally binding on the parties involved.  An award under the Act can only be challenged for a lack of substantive jurisdiction (section 67), serious procedural irregularity (section 68, as modified by the Act) and appealed on a point of law (section 69) under the Arbitration Act 1996.

Have any arbitration awards been published yet?

At the time of publication, only a few awards have been issued and published under the Act, which appear to make good reading for landlords.  Most notably, the award in Signet Trading Limited v Fprop Offices (Nominee) 4 Limited and Fprop Offices (Nominee) 5 Limited, determined that the relief a tenant claimed was not protected under the Act, because the premises to which the rent related was not subject to a closure requirement.  Accordingly, the tenant had not been adversely affected by coronavirus; an essential requirement under section 4 of the Act.  The tenant in this case was a jewellery retail business and the subject premises was not a retail outlet but its head office.

In Commerz Real Investmentgesellschaft mbH v RHL Realisations 2022 Limited (formerly known as Rush Hair Limited), RHL entered into voluntary liquidation shortly after the Landlord made a reference to arbitration, however it was found this did not impact or disrupt the arbitration process.  The Arbitrator first determined whether the dispute was eligible, specifically whether the tenant’s business was viable (or could become viable) if an award of relief from payment of rent debt was given.  The Arbitrator determined the Tenant’s business was not viable and would not become viable even if relief from payment of the circa £81,000 rent debt was awarded.  The dispute was not, therefore, eligible and the reference to arbitration was dismissed.

What about rent arrears outside the Protected Period?

The Act does not apply to any arrears that accrued outside the Protected Period (as defined in Section 5 of the Act), i.e. rent which fell due before 21 March 2020 or after 18 July 2021 (depending on the tenant’s business sector).  Consequently, a landlord may issue debt proceedings for any arrears outside the scope of the Act, subject to compliance with the Code of Practice for commercial property relationships following the COVID-19 pandemic.

Conclusion

There are options available to deal with rent arrears, whether they remain protected by the Act or not.  The uncertainty surrounding whether the arbitration scheme will be extended will result in decisions needing to be made quickly in the event a reference to arbitration is desirable to a particular party.  Alternatively, negotiating and entering into an agreement to repay rent debt (whether Protected Rent Debt or not) is still a viable option, especially where commercial relationships have survived the test of the last two and a half years. 

Please contact either Ian Crowe or Charlotte Wormstone should you wish to discuss any particular aspect of this article or to enquire how we can help you with any landlord and tenant queries you may have.