This article provides an overview of the arbitration scheme for rent arrears due to Covid-19 and the Commercial Rent (Coronavirus) Bill.
On 9 November 2021, Kwasi Kwarteng, the current Business Secretary, announced a draft Bill that will introduce an arbitration scheme for rent arrears and an accompanying Code of Practice.
On announcing the proposals, Kwasi Kwarteng said:
“Today’s measures provide commercial landlords and tenants with the clarity and certainty they need to plan ahead and recover from the pandemic.”
The announcement followed the Autumn Budget, which provided measures of support for commercial landlords and tenants, including the freezing of the business rate multiplier for another year and a 50% business rates discount for the retail, hospitality and leisure sectors (up to a maximum of £110,000).
Commercial rent arrears and protection from eviction
Code of Practice
The Code of Practice replaces the Code of Practice for commercial property relationships, published on 19 June 2020 (updated April 2021). It applies to all commercial leases where there has been a build-up of rent arrears as a result of tenants being unable to pay due to the impact of the Coronavirus pandemic.
The aim of the code is to assist commercial landlords and tenants who are in dispute over rent arrears resulting from the tenant having their business restricted or closed during the pandemic.
The code provides the following:
- Guidance on the Commercial Rent (Coronavirus) Bill, in particular, a proposed binding arbitration process;
- Best practice for landlords and tenants who are outside of the scope for arbitration;
- Encouragement of good practice between the landlord and tenant, particularly when negotiating; and
- Principles that the landlord and tenant need to be guided by.
The Commercial Rent (Coronavirus) Bill
The new laws under the Commercial Rent (Coronavirus) Bill are set to come into force in England and Wales on 25 March 2022, until which time, commercial tenants are protected from eviction by current government legislation to prevent ‘forfeiture’ of leases resulting from rent arrears. These earlier measures are set to expire on 25 March 2022, making way for the new laws. It has been said that the Bill will include power for Northern Ireland to introduce similar legislation.
The Bill includes a binding arbitration process. Where landlords and tenants have failed to resolve a dispute over rent arears, either party can apply for arbitration (provided that the tenancy falls within the scope of the Bill). The arbitration process is viewed as a ‘backstop’ where negotiation has failed. It will be legally binding between the parties, meaning that the result of the process must be adhered to.
Whilst the arbitration process is a useful addition, the government want to encourage parties to reach their own agreement through negotiation instead of resorting to binding arbitration.
The window for applications for arbitration will be set at 6 months from the date when the legislation comes into force, and there will be a maximum time frame of 24 months for repayment of arbitral award.
It is hoped that the addition of the Bill will help the market return to normal. Importantly, the Bill still has to be passed through Parliament, and as result, changes may occur before it is finalised. It will be interesting to see the impact that it has on the market in due course.
If you would like to discuss how this may affect you or your business, please get in touch.