Commercial Rent (Coronavirus) Act 2022: an end to a temporary moratorium

The forced closure of businesses during the Covid-19 pandemic significantly impacted the economy and left many tenants unable to pay their rent. To protect businesses, the government introduced restrictions on landlords’ ability to forfeit leases (and other enforcement options) due to non-payment of rent. Whilst many businesses considered these restrictions necessary at the time, this has resulted in a build-up of rent arrears which some landlords and tenants are still trying to unravel. The government’s latest measure to assist parties who are unable to agree on protected rent debt disputes is The Commercial Rent (Coronavirus) Act 2022, which came into force on 24 March 2022 (“the Act”). The purpose of the Act was to ringfence rent debts accrued during the pandemic and introduce a legally binding arbitration process aimed at resolving such disputes. Whilst the government continues to encourage parties to resolve matters themselves (having issued a Code of Practice to offer guidance on this), a temporary moratorium is in place preventing landlords from exercising their usual remedies in relation to the ringfenced protected rent debt. With the temporary mortarium ending on 23 September 2022 (the deadline), or when the arbitration process is complete for referrals that have already been made, this is a reminder of the debts that are protected under the Act and a summary of the next steps. Which debts are protected by the Act? Protected rent debts include unpaid: Rent; Insurance rent; Service charge; Interest; and VAT payable on the above sums. The rents referred to above will be protected by the Act if they have accrued under a business tenancy (to which Part Two of the Landlord and Tenant Act 1954 applies) and the following applies: The tenancy was adversely affected by coronavirus; and The unpaid rent is attributable to a period of occupation by the tenant within the protected period. The tenant’s business or the premises themselves must have been subject to a forced closure requirement beginning on or after 2.00pm on 21 March 2020 and ending at or before 11.55pm on 18 July 2021 if the premises are in England, and 6.00am on 7 August 2021 if the premises are in Wales. The length of the protected period will depend on the type of business which the tenant carries out. For example, garden centres were able to reopen on 13 May 2021, whereas nightclubs could only reopen on 18 July 2021. The statutory arbitration process Subject to the landlord or tenant giving notice to the other party that they intend to refer a dispute to arbitration, either party can refer a dispute to arbitration before the deadline if the dispute relates to (1) whether there is protected rent debt; and (2) whether the tenant should be granted relief from paying the protected rent debt. The relief the arbitrator could grant could be one or more of the following: Writing off the whole or part of the debt; Giving the tenant time to pay the debt (in whole or in part). This could include paying by way of instalments; Reducing or writing off any interest payable under the terms of the tenancy in relation to the debt due. When considering if or what relief(s) should be granted, the arbitrator will assess whether the tenant’s business is viable or whether the business would become viable if the tenant were granted relief. Any award should be aimed at preserving the tenant’s viable business, so far as that is consistent with preserving the landlord’s solvency. A minimum of 14 days’ notice is required before making the referral (longer if no response is received from the other party). As the deadline is less than 14 days away, no new notifications can now be made. Any landlords or tenants who have previously provided notification of their intention to refer a dispute for arbitration, but not yet made the referral, must now decide whether they wish to make a referral and, if so, action that referral before the deadline. Unprotected debts following the expiry of the moratorium period Since 25 March 2022, landlords have been able to exercise their usual remedies in respect of non-payment of rents which are not protected by the Act. Unless the moratorium is extended by the secretary of State or there is ongoing arbitration, once the deadline has passed, landlords’ usual remedies for non-payment of rent accrued during the protected period will also be fully restored. Whilst the available remedies depend on the circumstances, they may include: Forfeiting the lease; Issuing Court proceedings to recover rent arrears; Using the Commercial Rent Arrears Recovery scheme; Initiating insolvency proceedings; Withdrawing from rent deposits held; Taking action against any guarantors; and Entering into an agreement with the tenant. Commentary With only a few days remaining until the deadline, it is yet to be seen whether the secretary of State will extend the deadline to allow for more referrals for arbitration to be made. Although the government has outlined that they sympathise with tenants who have suffered due to forced closure during the pandemic, the moratorium does take away powerful remedies of the landlord and there seems to be a push to ‘move on’ from pandemic times. The British Property Federation assessed in June 2021 that 77% of disputes had already been agreed between parties directly and the government has made clear to tenants that where they can pay debts, they should pay them. If parties have not taken the opportunity to refer a dispute for arbitration before the deadline, it is questionable whether they would make a referral if the deadline were extended. When landlords have the full range of remedies available to them again, a commercial decision will need to be made as to whether (1) it is in the landlords’ commercial interest to take the property back; and (2) the likelihood that a new tenancy could be granted on similar or more advantageous terms. If the property is likely to be vacant for some time, it may be preferable to keep the existing tenancy in place and pursue alternative remedies if negotiation has failed.

Commercial Rent (Coronavirus) Act 2022: an end to a temporary moratorium

Juliet Farrington-Breeze, associate in the Property group at London law firm Simkins LLP, discusses the imminent end of the temporary moratorium under The Commercial Rent (Coronavirus) Act 2022, which debts that are protected under the Act and a summary of the next steps

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