Coronavirus Bill - act now to resolve pandemic rent arrears!
Legislation is currently going through Parliament with a view to enacting the Commercial Rent (Coronavirus) Bill at the end of March. This legislation is bound to act as a catalyst to get any arrears sorted over the next few months, whether that be by negotiation, mediation, arbitration or litigation.
As many of you who are involved in commercial property will be aware, legislation is currently going through Parliament with a view to enacting the Commercial Rent (Coronavirus) Bill at the end of March. As has been well documented, the government has protected tenants by imposing a moratorium on the forfeiture of business leases, restricting the statutory commercial rent arrears recovery procedure, and significantly limiting the service of statutory demands and winding up petitions. Landlords and tenants have subsequently been encouraged to resolve the pandemic arrears. However, many are not resolved. The legislation currently going through Parliament will, however, introduce an arbitration process for those disputes that are not otherwise resolved by negotiation or mediation.
Either the landlord or tenant can refer any such dispute to an arbitrator for “in scope” arrears. The aim is to extend the current protections for those tenants that are in scope for a further 6 months (or if the debt is referred to arbitration, protection will end when that arbitration ends). In broad terms, arrears will be “in scope” if business tenants were forced to fully, or partially, close their business due to coronavirus related laws. An arbitrator will, under the proposed legislation, be able to award relief from payment by the tenant which may constitute a full or partial write-off or, alternatively, order deferred payments. In assessing whether relief is appropriate an arbitrator will need to consider the tenant’s viability and the landlord’s solvency.
Many questions still remain as to how a variety of potential arbitrators will be able to implement such a scheme with fairness and consistency. This is because of the criteria that they will need to assess and apply in coming to their decision. A key issue will be what does “viable” mean. Different businesses, different sectors, and different products will be at different stages of their business cycle. Some may have a more positive outlook than others despite a bleak couple of years. Whereas in contrast other businesses with a more successful history might be reaching the end of the road for any number of reasons. Different geographical areas and locations will also have their own specific dynamics which should form part of the necessary assessment by an arbitrator. Expert evidence may be needed in some circumstances.
As a result, to the extent that there remain outstanding arrears that have not been resolved or addressed to date, they need to be now. This is definitely the time to be looking at these Covid arrears so that a sensible strategy is in place. The moratorium providing protection for tenants will end very shortly. For those arrears in scope then there should be a focus on resolving them and hopefully doing so without the need to resort to arbitration. But the window for a referral is quite tight with a 6 month period envisaged to make any reference. Further, those arrears that are not in scope will shortly give rise to an opportunity for landlords to pursue the traditional recovery measures that, for circa two years, have been denied to them because of the pandemic. Tenants in particular need to be prepared and ready to deal with this change in landscape.
Whichever side of the landlord or tenant fence that you may sit in respect of the pandemic arrears and, whether or not the property is protected by the proposed legislation or not, there is undoubtedly going to be an increase in activity to bring the issue of any arrears to a conclusion. This legislation is bound to act as a catalyst to get any arrears sorted over the next few months whether that be by negotiation, mediation, arbitration, or litigation.
Please contact Ed Meggitt or Llinos Davies, should you have any queries or issues arising from this proposed legislation or generally in respect of Property Dispute Resolution queries.