Commercial Rent (Coronavirus) Act 2022: restrictions Business, Charity and Education clients should be aware of
Due to the coronavirus pandemic, in 2020 the Government passed legislation to protect commercial tenants from eviction in the event that they were unable to pay their rent. This legislation also prevented landlords from exercising other remedies against defaulting tenants.
Generally speaking, these protections came to an end on 25 March 2022 – landlords can now resort to forfeiture as a remedy in the event of non-payment of rent. However, under the new Commercial Rent (Coronavirus) Act 2022 (“the Act”) there will be continuing restrictions in respect of some tenancies that were adversely affected by coronavirus. So, whether you are a landlord or a tenant, and particularly if rent arrears have built up, please keep reading.
What does it apply to?
The ongoing restrictions will apply to commercial rent debts accruing between 21 March 2020 and 18 July 2021 (but the end date could be earlier from case to case) and arising from businesses that were subject to mandatory closure - so gyms, pubs, restaurants, retail (including supply chains) leisure, manufacturing, industrial and logistics, and sports.
The Act does not apply to tenants who voluntarily closed during the pandemic.
What are the restrictions?
The restrictions introduce a temporary moratorium on the following enforcement methods, as well as others:
- Forfeiture for non-payment of protected rent;
- Making a debt claim; and
- Drawing down on a rent deposit (where a drawdown has occurred previously, the tenant is not required to top up the rent deposit during the moratorium).
It is not just annual rent that is protected. Protection extends to service charge, insurance, VAT, interest and rent deposit top-ups.
How long does this apply for?
The moratorium begins on 24 March 2022 and lasts for six months, unless the matter is referred to arbitration in which case the moratorium lasts until the conclusion of arbitration. During the moratorium, either party can refer a disagreement over the resolution of the unpaid rent (relating to “the protected period”) to binding arbitration.
How should the arrears be resolved?
For landlords and tenants who cannot negotiate a settlement in relation to these commercial rent arrears, the Act sets out an arbitration process. The Government has stated that arbitration should be treated as a last resort. Indeed, the Government’s intention, as set out in their recently published “Commercial rent code of practice” (“the Code”) is that “landlords and tenants should keep working together to reach their own agreements where possible using our Code of Practice to help them” (Business Minister Paul Scully).
The arbitrator is able to make an award such as:
- full or partial write off;
- deferral of the debt on terms for up to 24 months;
- nil concession.
What does this mean for you?
If you are a landlord or tenant where rents are outstanding due to the coronavirus pandemic, in short this means:
- Landlords will now be able to exercise the same remedies for non-payment of rent as they did prior to the restrictions coming into force EXCEPT that any arrears which arose during the “protected period” in respect of businesses that were subject to mandatory closure will now be capable of being referred to arbitration by either the landlord or the tenant, and the usual remedies for non-payment of rent will not be available to landlords in relation to those protected rent debts.
- As ever, if landlords are considering forfeiture, it is important to take advice in advance.
- If no agreement can be reached on settlement of rent arrears, the parties should consider whether to refer the matter to arbitration.
Some of the rules are complex and there are potential banana skins. If you are a landlord or tenant trying to work out how to approach the question of rent arrears early advice should be sought.