The Government is containing with it’s plans to extend protection for commercial tenants and has indicated that it will introduce a new ring-fencing and arbitration scheme. The new legislation to deal with the commercial rent arrears which have built up as a result of the Covid-19 pandemic.
The legislation is expected to be introduced before the end of the moratorium on forfeiture proceedings for non-payment of rent (25 March 2022).
The government has put forward the following proposals:-
- To ringfence commercial rent arrears that built up since March 2020 (due to business closures), until restrictions for their sector were lifted. Once the arrears are ringfenced, landlords will not be able to forfeit the lease for non-payment of these arrears or take insolvency proceedings against the tenant for this debt.
- To encourage landlords and tenants to negotiate in good faith and reach a solution where possible, using the principles set out in the revised Code of Practice (referred to below).
- Landlords are expected to “share the financial burden with tenants” and “defer or waive entirely an appropriate proportion” of those ringfenced arrears.
- Where the parties can’t agree on how to settle the rent arrears, the last resort will be for the parties to undertake a binding arbitration.
- The voluntary Code of Practice introduced last year will be revised and strengthened to set out the principles that the parties and arbitrators should follow, and the revised Code will become mandatory by putting it into legislation. If parties don’t negotiate in good faith, they may be penalised.
- To ensure that tenants should pay any rents which accrued before the pandemic and any rents payable since the restrictions were lifted. Now that all restrictions have been lifted, tenants in England should be paying their rents henceforth.
- At this stage, the Government has only made an announcement and the finer details of the proposed legislation are not yet known. Many questions remain unanswered, for example:
How will the ringfencing of rents work in practice?
- When are the restrictions deemed to have been lifted?
- The restrictions were not continuous, so how will the Government treat those periods where lockdown was eased for a few months?
- Will those businesses which were not forced to close, but which have been indirectly affected by the pandemic be able to benefit?
- Precise details of how the arbitration process will operate in practice are also not yet known.
However, until the ring-fencing scheme is introduced, a landlord's main option remains a claim in the County Court or the High Court, for payment of rent arrear debts.
Whether or not landlords generally have the appetite to pursue rent arrear claims remains to be seen. In many instances, the cost and delay may make it an unattractive option, and landlords may instead choose to wait for the arbitration scheme or for restrictions on other remedies to lapse.