It has been some 20 months now since the Coronavirus Act 2020 was enacted. The Act covers a wide range of matters, and began the complete rebalancing of the relationship between commercial landlords and tenants by suspending one of the landlord’s key remedies for non-payment of rent by a tenant – forfeiture.

This was swiftly followed by restrictions on other landlord remedies (including CRAR and winding up) all with the aim of protecting tenants when they were prohibited from trading. There have been some alterations to the Act in the intervening period but until March 2022 the substantive restrictions remain.

Many private deals have been struck between landlords and tenants already to address Covid rent arrears, but there are huge sums of commercial rent that remain unpaid. This is an issue which, if left unaddressed, might lead to a wave of forfeitures and business closures next spring once the current restrictions lift. The Government has seemingly been alive to this prospect for some time, with their plans to introduce some form of binding alternative dispute resolution process between commercial landlords and tenants being common knowledge.

Significant implications commercial landlords and tenants

These plans have now crystallised with the Commercial Rent (Coronavirus) Bill being presented to Parliament (having now gone through a second reading). If the Bill passes unchanged, this would have significant implications for commercial landlords and tenants, with the following being some headline points:

1. If there is rent or service charge (and interest) due under a business tenancy in England that remains unpaid as a result of a tenant being required to close or limit trading activity between 21 March 2020 and 18 July 2021, and the landlord and tenant are not in agreement as to what is to be done about it, then either may require that the dispute be resolved by arbitration.

2. Any referral to arbitration must be made within 6 months of the date on which the Bill is passed and must include a formal evidenced proposal for resolving the matter. The other party may respond within 14 days with its own proposal and either proposal may be revised within 28 days of the original proposal being made.

3. There is a further suspension on the use of the usual rent recovery remedies for unpaid sums that fall within the scope of the Bill until either the arbitration referral period expires without a referral having been made, or an arbitration is concluded.

4. If the tenant’s business is viable or would become viable if some rent relief were granted, then the arbitrator must resolve the matter by considering whether the tenant should receive any relief and making an award.

5. When considering what award to make, the arbitrator should have regard to the following principles:

1. the viability of the tenant’s business should be preserved or restored except where this might jeopardise the landlord’s solvency; and

2. provided this is consistent with the above principle, the tenant should be required to pay the outstanding sums in full and without delay.

Commercial balancing

In essence, the Bill replaces parties’ legal rights with a commercial balancing exercise that seeks to ensure that both the landlord and the tenant remain solvent. In doing so, the Bill attempts to incentivise the parties to reach an agreement on their own in advance of a referral. With each party being required to bear their own legal costs, any oral hearing and award made required to be public and no mechanism for combining similar arbitrations with the same landlord or tenant, some of the ‘incentives’ seem to be particularly targeted at bringing parties with multiple properties (as either landlord or tenant) back to the negotiating table.

The Bill still has some unresolved issues and may well change before it is passed, but it does seem to signal a move to a more interventionist approach by the Government in commercial relationships relating to property. For the time being though, unless there are further lockdowns, it seems that the issue of Covid-19 pandemic commercial rent arrears may in large part be resolved, one way or another, by the end of 2022. Famous last words.

If you wish to discuss the implications of the Commercial Rent (Coronavirus) Bill further, please contact Tim Kirkconel on [email protected] or 01223 643114.