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The Commercial Rent (Coronavirus) Bill

The long-awaited draft legislation from the Government, the Commercial Rent (Coronavirus) Bill, has been published along with an updated “Code of Practice for property relationships following the COVID-19 pandemic”.

Whilst the Bill is still in the early stages of the legislative process (it is now in the second reading in the House of Commons with various stages yet to come), it does propose certain changes that will, if passed, have retrospective effect. It is estimated that the Bill will become law in or around March 2022 and, to allow time for the Bill to pass, existing moratoriums of forfeiture for non-payment of rent, winding-up petitions for covid-19 related rent arrears and CRAR restrictions will remain in place until 25 March 2022.

Key points of the Bill, and Code of Practice, are as follows:

What does the Bill do?

Scope

The Bill covers rent arrears (including service charge and insurance arrears) where:

  • A lease is protected by Part II Landlord and Tenant Act 1954; and
  • Where the tenant was ‘adversely affected by coronavirus’ – meaning that the business, or part of it, was forced to close down by coronavirus regulations.

The period of rent arrears being ring-fenced due to Covid 19 varies by sector. It commences on 21 March 2020 and, depending on the nature of the tenant’s business, finishes somewhere between 12 April 2021 and by no later than 18 July 2021 (details are provided in Annex A of the Code of Practice).

Moratorium on Debt Claims

Debt claims for rent arrears that arose during the ‘protected period’ for the relevant sector will be subject to a moratorium (following on from, and alongside, the existing moratorium on forfeiture, winding-up proceedings and CRAR) until:

  1. An arbitration award is made or;
  2. The 6-month deadline for applying for arbitration expires without an application being made (according to current calculations, up to about 25 September 2022).

The landlord will also be prevented from using a tenant’s deposit.

Notably, schedule 2 of the Bill also states that any debt claim for rent arrears made after 10 November 2021 can also be stayed and referred to arbitration and also that any judgment for rent arrears made after 10 November 2021, provided the amount remains unpaid, can also be referred to arbitration. The binding arbitration process is set out in detail in the Bill.

Key Principles for the Arbitrator  

Any arbitration award should aim to balance the rights and needs of tenants and landlords in line with a short set of key principles set out in paragraph 15 of the Bill, being:

  1. That the viability of the tenant’s business should be preserved, or restored, so long as that is consistent with preserving the landlord’s solvency; and
  2. Where tenants can pay the rent and other sums due under the lease, they should continue to do so in full and without delay.

The Bill in the light of Case Law on Covid-19 debt claims for arears.

Following the High Court decision in London Trocadero LLP v Picturehouse Cinemas Limited and Others [2021] EWHC 2591 (Ch) in October, the third of a hat-trick of decisions in which landlords successfully obtained judgment against tenants in respect of covid-19 related arrears, issuing debt claims against tenants with covid-19 related arrears may have seemed an attractive prospect for landlords, particularly where a tenant was large, had a viable business. They may have been considering bringing such a claim prior to the passing of the anticipated new legislation on the arbitration scheme.

In the Trocadero case, an earlier application by the tenant to stay the proceedings pending the new legislation was refused and the Court gave summary judgment in favour of the landlord, dismissing arguments that:

  1. there had been an implied term that rent was not due where a business had to close due to Government regulations rendering the permitted use of the premises criminal and
  2. that there had been a ‘failure of basis’ or total failure of consideration.

Most of the legal arguments used by tenants arguing that covid-19 related arrears were not due appeared unviable. It now appears that the tenant in the Trocadero case has been given leave to appeal to the Court of Appeal and they will perhaps be particularly encouraged to do so in the light of the new Bill.

Effect of the Bill Going Forward

In light of the Bill, and despite the hat-trick of successful landlord’s debt claims for rent arrears,  landlords who have thus far been unable to make an agreement as to outstanding covid-19 related, ring-fenced debt may now be thinking again before issuing new debt claims for rent arrears relating to Covid 19. This is particularly the case in view of the retrospective effects of the Bill as drafted. These claims look likely to be stayed under the new legislation and referred to binding arbitration where the arbitrator will be looking to balance the needs of landlord and tenant by applying the key principles of preserving a viable tenant’s business and providing relief where needed for cases falling within the scope of the Bill.

Having said that, many landlords and tenants have already come to an agreement as to covid-19 related arrears and both parties continue to be encouraged to follow the new Code of Practice, even though it is not yet binding. As such, it remains to be seen as to how intensively used the arbitration process will be by the time it comes into force (if it passes as introduced and without significant amendment) in several months’ time. The story of Covid-19 related rent arrears is, once again, to be continued…

If you require assistance with a commercial lease dispute, please contact a member of our specialist Property Disputes team via email or on 0113 207 0000 today.

 

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Clare Castillo

Chartered Legal Executive
Property Disputes
CCastillo@LawBlacks.com
0113 322 1929