The Commercial Rent (Coronavirus) Act (the Act) received Royal Assent and came into force on 24 March 2022. The aim of the Act is to provide a legally binding arbitration process to resolve disputes in relation to commercial rent arrears accrued during the COVID-19 pandemic when businesses were forced to close.
The Act relates to business tenancies to which Part 2 of the Landlord and Tenant Act 1954 applies. This will include, amongst others, a lease, an agreement for lease, underlease and an agreement for underlease. It will not apply to, for example, a licence or a tenancy for a term that is less than 6 months.
To begin with, rent, pursuant to section 2(1) of the Act, means an amount payable by a tenant to a landlord under a tenancy, whether described as rent or otherwise, including a service charge, VAT and interest on these amounts. It is also worth noting that any rent deposit top-ups are also captured by the Act.
The Act introduces "protected rent debts", being rent owned under a tenancy that was adversely affected by coronavirus during protected period (Protected Rent Debts). A tenancy was adversely affected if a business (or part of it) was forced to close in the protected period starting at or after 2.00 pm on 21 March 2020 and ending at or before 11.55 pm on 18 July 2021 (England) or 6.00 am on 7 August 2021 (Wales) (Protected Periods). The end date will vary depending on the business sector (a summary of the Protected Periods for affected business can be found in Annex A to the Commercial rent code of practice following the COVID-19 pandemic).
The arbitration scheme introduced by the Act and discussed here will only apply to Protected Rent Debts.
The Act introduced a temporary moratorium which started on 24 March 2022 and will be in place until 23 September 2022 (unless extended by any regulation) or until the conclusion of arbitration. There are various restrictions on enforcement methods during the moratorium which can be summarised as follows:
If a tenant owes a landlord both Protected Rent Debts and unprotected rent and makes a payment during the Mortarium, it will be allocated to unprotected rent before it is allocated to the Protected Rent Debts, unless the tenant specifically appropriates the payment to the latter.
If a tenant owed a landlord Protected Rent Debts and unprotected rent and, during the period specified above, the tenant made a payment, which the landlord allocated to the Protected Rent Debts, any such allocation will be ineffective. As with the payments made during the Moratorium, they must be allocated to unprotected rent debts first, unless the tenant specifically appropriated the payment to the Protected Rent Debts.
The rules introduced by the Act are complex and apply in a number of different ways, depending on the type of debt. It is crucial to seek professional advice before relying on the Act, particularly if enforcement action is being considered.
For further information on this article, please contact David Pomeroy or another member of our Restructuring & Insolvency team.
