Frettens’ own ‘Insolvency Guru’ Malcolm Niekirk recently provided his update on understanding rent arbitrations for insolvency practitioners.
He goes on to discuss how the Act will manage commercial rent arbitration moving forward.
What is the Commercial Rent (Coronavirus) Act 2022?
The Act has been implemented and from 25th March 2022 it will govern how the majority of commercial landlord and tenant disputes will be determined over the next 6 months.
- Rent arrears
The Act applies to all business tenancies as defined in the Landlord and Tenant Act 1954.
Why has the Commercial Rent (Coronavirus) Act been put in place?
Due to the financial impact of Covid-19, previous legislation was implemented in March 2020 by the Government to prevent recovery of certain commercial rent arrears and to prevent some forms of commercial forfeiture during the Pandemic.
The Government has now seen fit to implement the Commercial Rent (Coronavirus) Act 2022 as a means of moving forward for both landlords and tenants.
What does the Commercial Rent (Coronavirus) Act 2022 do?
The Act sets out how a new rent arbitration process will assess and determine how the respective parties should proceed.
The arbitration process is open for 6 months from the implementation of the Act, taking it up until 24th September.
Who is eligible for the arbitration process?
The landlord or tenant can serve on the other a letter of notification, setting out their proposal and requesting the other side’s agreement.
If this is not accepted, either the landlord or the tenant can then refer the matter to the Arbitrator for a determination during the 6 month applicable period.
If neither party does this, the arbitration provision from the Act falls away, and the usual previous remedies from pre-Coronavirus will be available to the parties from 25th September onwards.
Upon receipt of an arbitration request, the Arbitrator will consider the circumstances of both the landlord and the tenant in the context of the pandemic when making their award.
What is the protected rent period for rent arbitration?
The protected rent period, for which the arbitration provision will apply, is from 21st March 2020 to 18th July 2021.
This could potentially be earlier depending on when the closure requirements or restrictions for any specific businesses expired, however for the majority of debts the above timeframe will apply.
This means that the protected period will vary from business to business.
Certain businesses such as supermarkets and chemists which were never required to close will not have a protected rent period.
You can contact our team to see how the period would be determined for your business.
How does rent arbitration work?
After receiving a referral for arbitration from either the landlord or the tenant, the Arbitrator will have a wide discretion to determine disputes based on the evidence provided by the landlord and tenant.
The Arbitrator has the power to grant relief from payment of the debt by the tenant, i.e by writing off all or part of the money owed; or provide the tenant up to 24 further months to clear the arrears.
What’s included in the arbitration process?
The Arbitrator will asses the financial situation of both the landlord and the tenant and make a determination accordingly.
It is clear that the tenant’s financial situation is not more important or to take precedence over the landlord’s own financial situation, and if the tenant is in a healthy financial situation and can pay in full, they should do so without delay.
Who can act as an arbitrator?
It is yet unclear who will be able to act as the Arbitrator or how landlords or tenants can go about instructing them, despite the provision already being open.
The Government has promised that updating guidance on this is coming imminently, although it is odd that after 2 years of restrictions this was not readily explained and available at the time of the Act coming into force.
This has therefore resulted in speculation that the 6-month referral process may be extended in due course to a longer period.
What if the tenant can’t afford to pay after arbitration?
If the Arbitrator makes a determination that rent is due and owing and the tenant simply cannot afford to pay the determined sum or payment plan to the landlord, the landlord may look to:
- Forfeit the lease,
- Issue Court proceedings for judgement for the arrears, or
- Explore winding-up options for the tenant.
As the arbitration provision is only open for 6 months, and is largely to the benefit of tenants, landlords may wish to wait for the 6 months to pass in the hope that the tenant does not refer the matter to the Arbitrator – resulting in the landlord being able to take a full range of enforcement actions against the tenant without any of the arrears being protected.
Advice on rent arbitrations for landlords
Landlords will not be able to exercise their usual remedies in such matters until the conclusion of the arbitration process for protected rent if referred, or in the event that it is not referred, before 25th September 2022.
If proceedings are issued before the 25th September, they will be stayed during the arbitration process.
If you are a landlord looking to enforce an arbitration award, or a tenant facing enforcement action against you, we recommend that you seek immediate legal advice to ensure that you take the correct and appropriate action.
Specialist Property Litigation Solicitors
We will be able to advise you on the appropriate way of proceeding, as well as represent you throughout negotiations and Court proceedings if necessary.
Call us on 01202 499255, or fill out the form at the top of this page, for a free initial appointment
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