Government outlines plans for COVID-19 rent arrears

On the 4th August 2021, the Ministry of Housing, Communities and Local Government released a policy statement detailing its plans to introduce legislation to ringfence certain rent arrears which accrued from March 2020 because of business enforced closures through COVID-19 restrictions and to set out a process of binding arbitration to be undertaken between landlords and tenants.

Ringfenced Debts

The new legislation will ringfence only those rent arrears which relate to a period where the tenant’s business was ordered to close by Covid Regulations which applied to that tenant’s business. The periods for which arrears are ringfenced will, therefore, vary from sector to sector. This ringfenced debts will then be subject to a binding arbitration procedure, as set out below.

Normal contractual arrangements will apply to any rent arrears which fall outside of the ringfenced debt.

Binding Arbitration

Parties are encouraged to enter negotiations to agree a resolution in respect of ringfenced rent arrears. Landlords will be expected to share some of the financial burden, but tenants who can pay, will be expected to pay. If an agreement cannot be reached, as a last resort, the parties will need to use the process of binding arbitration. A decision will be made by the arbitrators which will be binding on the parties.

The Government has also announced that before the legislation is introduced, it will publish a Code of Practice which will provide guidance as to how the parties will be expected to negotiate.

Landlords are currently prevented from forfeiting commercial leases for any non-payment of rent until 25 March 2022 in England, and 30 September 2021 in Wales (unless legislation is passed before these dates to the contrary).