The Commercial Rent (Coronavirus) Act 2022 (the Act) introduced a binding arbitration process (the Scheme) to reconcile rent disagreements between landlords and tenants where a business tenancy was adversely affected by closure during coronavirus. In this article, we highlight how the Scheme applies and its process.
We discuss which tenancies are covered by the Act in our article here. The Scheme strives to balance the preservation of viable businesses against the solvency of landlords. Tenant businesses that qualify for the Scheme but are capable of paying should pay their landlord the total outstanding amount.
The Scheme only applies to rent arrears accrued within the “protected period”. Rent arrears amassed outside the protected period are not covered by the Scheme, but the usual landlord remedies are available, including:
Under the Act, “rent” encompasses any amount payable by the tenant to the landlord for possession and use of the tenancy premises, service charges, insurance premiums, interest due on the outstanding, and VAT chargeable on any of the amounts.
Under the Scheme, both landlords and tenants can refer their disputes to arbitration. However, the referring party (the Referrer) must first notify the other party (the Respondent) of its intention to make a referral. The Respondent has 14 days to respond to this notification. Parties should attempt to achieve an agreement in advance of a referral. In the absence of agreement, the Referrer can refer 14 days from the Respondent’s response or 28 days from service of the notification if the Respondent did not respond.
Referrals must be made within six months from 24 March 2022 (the deadline therefore being 23 September 2022). This six-month window is known as the mortarium period, during which the usual landlord remedies (set out above) are suspended for Protected Rent Debts. Notifications of intention to refer should be made in advance of this deadline to allow for the Respondent’s response. The government can nevertheless extend this timeframe.
To refer, the Referrer must submit a formal proposal, such as a payment plan, with supporting evidence. The Respondent has 14 days to provide their own formal proposal in response, along with supporting evidence. Tenants are likely to supply the majority of supporting evidence as they are in arrears. Either party can submit a final proposal with further supporting evidence 28 days from the OP’s response, or 28 days from the Referrer’s original proposal if the Respondent does not cooperate. The arbitrator will evaluate the latest proposals.
Should a party request an oral hearing, the award must be made within 14 days of the hearing. Otherwise, a decision must be reached “as soon as reasonably practicable”.
The arbitrator’s powers include waiving some or all of the rent payable, granting relief through an instalment plan (which must be no longer than 24 months) or making no relief. The arbitrator will publish the award made and reasons behind them. This may help negotiations between other parties. Alternatively, the arbitrator may dismiss the referral in situations where the tenancy or outstanding debt is not relevant for the purposes of the Act, the tenant’s business is not or would not be viable even with relief, or where the parties have come to an agreement outside arbitration.
As the arbitrator has wide powers, which may including making no relief or dismissing the referral, it is in both parties’ best interests to discuss how rent arrears sustained during closure should be dealt with in open dialogue and seek to reach a mutual agreement. If an agreement cannot be reached, and reference to arbitration is anticipated, parties should seek independent professional advice to identify the arrears covered by the Act, particularly if they are involved in multiple tenancies. Whilst professional advisors can assist with the preparation of formal proposals, parties should gather supporting evidence concerning the tenant’s business viability and landlord’s solvency.
For further information on this article, please contact Olivia Reader or another member of our Restructuring & Insolvency team.
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