New statutory arbitration process to be introduced for pandemic-related commercial rent arrears

17
Nov

 

In a new measure aimed at assisting commercial landlord and tenants to resolve rent disputes which arose during periods of forced closures during the COVID-19 pandemic, The Commercial Rent (Coronavirus) Bill (the Bill) was introduced in Parliament last week, along with a new Code of Practice (the Code). 

The government aims to pass the Bill by 25th March 2022, when the restrictions on forfeiture for commercial rent arrears and the use of Commercial Rent Arrears Recovery (CRAR) come to an end.  

 

The Code

The Code replaces the old Code of Practice for Commercial Property Relationships During the COVID-19 Pandemic, which was published in June 2020 and revised in April, and will take effect immediately. 

The purpose of the Code is to guide commercial landlords and tenants in their negotiations regarding rent arrears that accrued during the pandemic.  Tenants which are unable to pay in full are expected to negotiate with their landlord “in the expectation” that the landlord waives some or all of the debt if it is able to do so.

The Code will also contain additional information about alternative forms of dispute resolution, including mediation.

 

The Bill

Where parties are unable to reach agreement in accordance with the principles of the Code, the Bill will allow either party to unilaterally refer the dispute to a legally-binding arbitration process (Statutory Arbitration).

Unlike the current forfeiture and CRAR restrictions (which apply regardless of the nature of the tenant’s business or the cause of the rent arrears), Statutory Arbitration will only apply to businesses which were forced to close during the pandemic and which accrued rent arrears during this time until the date that restrictions for their sector ended.  Arrears accrued outside of these periods are not covered. 

There will be a 6-month window to apply for arbitration once the new legislation comes into force, with a maximum 24-month time frame within which to repay the arrears within an arbitration award. 

However, it is important to point out that Statutory Arbitration will not be compulsory and parties are encouraged to continue negotiations and explore alternative methods of dispute resolution wherever possible, with Statutory Arbitration available as a last resort. 

If Statutory Arbitration is pursued, the other remedies available to landlords will be temporarily unavailable, to give priority to the arbitration process. In addition, where debt claims have been initiated on or after 10th November 2021 but before the Bill is in force, they will be stayed if one of the parties applies for a stay, to enable the matter to be resolved by Statutory Arbitration or otherwise. Where judgment has been given in respect of a protected rent debt in that period, the matter may still be subject to Statutory Arbitration and enforcement will be stayed.

Landlords will be unable to present:-

  • Winding-up petitions for protected rent debt during the moratorium period for Statutory Arbitration to take place.
  • Bankruptcy petitions against individuals for protected rent debt where the statutory demand relied on was served (or, if an unsatisfied judgment is relied on, the claim was issued) on or after 10th November 2021.

 

Any bankruptcy order made on or after 10th November 2021, but before the Bill comes into force in respect of protected rent debt will be void.

 

If you require further advice or guidance on the proposed Bill and Code of Practice – or would like to discuss how these new measures could affect you and your business – please contact David Low by email on djl@swinburnemaddison.co.uk or by phone on 0191 3755060.

 

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