Commercial Rent (Coronavirus) Bill – a tool to strengthen a negotiating position?

As commercial landlords and tenants continue to try and reach agreement on unpaid rent, we have noticed an increase in tenants demanding a large proportion of rent arrears be written off whilst threatening to invoke the binding arbitration process set out in the Commercial Rent (Coronavirus) Bill to try and strengthen their negotiating position.

A summary of the bill’s main proposal can be found in our article ‘Government outlines plans for COVID-19 rent arrears’.

So, does the threat hold weight? The following points are relevant:

1. Status of the legislation: The Bill is planned to be introduced on 25 March 2022 and until then a code of practice for commercial property relationships is intended to assist in resolving disputes in relation to rent owed as a result of premises being closed during the COVID-19 pandemic. The code encourages a discussion between landlords and tenants and for landlords to consider a reasonable case put forward by a tenant in distress and whether some temporary arrangement the landlord can reasonably offer might enable the tenant to survive.  However, this does not necessarily mean that the landlord must accept proposals to write off large sums where no evidence is provided as to affordability in relation to arrears.

2. Qualifying criteria: To qualify for the binding arbitration scheme as set out in the Bill, tenants will need to fall within the ‘scope’ of the proposed legislation which includes: (a) having been forced to close their premises or cease trading under regulations during COVID-19; (b) leased their premises under a business tenancy; and (c) have unpaid rent arrears which fall in a ‘ring-fenced period’ which is not subject to a concessionary agreement made between the parties i.e. from the mandated closure date on 21 March 2020 to the date restrictions were lifted. Annex A to the code helpfully sets out a summary of the ring-fenced period and the businesses affected.

3. Viability and affordability: The code makes it clear that the Bill is not intended to protect the business of an insolvent tenant. If the arbitrator concludes that the tenant’s business is not viable, any application for rent relief by the tenant will be denied.

The code also makes it clear that if the tenant can afford to pay the arrears, it should do so in full. The tenant will be required to provide evidence that it cannot afford to pay the arrears, including details of their assets and liabilities, the impact of COVID-19 on their business, and other information about their financial position.

We are happy to assist with general queries in relation to the Code and the impending legislation. For more information, please contact any member of our Property Dispute Resolution Team.