Significant restrictions which applied to landlords’ ability to recover commercial rent arrears from tenants have now come to an end. The previous measures, which had been in place since the start of the pandemic, have been largely replaced by new restrictions introduced in the Commercial Rent (Coronavirus) Act 2022 (“the Act”). However, it is important to note that the Act only affects a limited number of specific rent debts.
What rents are protected?
For arrears not captured by the Act, commercial landlords may use the same remedies for the recovery of commercial rent arrears as were available prior to the pandemic; except in respect of ’protected rent debts’ which arose during what is known as the ’protected period‘, as these will be captured by the Act. This will, in most cases, refer to any rent arrears, service charge, insurance payments, interest and VAT which fell due between 21 March 2020 and 18 July 2021, or earlier / later, depending on the type of business. A landlord’s only remedy against these ’ring-fenced‘ arrears between now and when the Act’s moratorium period expires on 23 September 2022, will be to refer the debt to a binding arbitration process established by the Act.
The new arbitration process
At present, a landlord or tenant can make a referral to the new arbitration scheme in respect of protected rent between now and 23 September 2022, although a prior process of giving notice and making proposals in writing (which can take up to around a month) must be undertaken first.
The arbitrator will consider the financial position of the parties, with the main aim of preserving an otherwise viable business and the jobs that they support – albeit not at the expense of the landlord’s solvency. The arbitrator can decide to write off some / all of the debt, allow further time for payment or allow payment by instalments for a period not longer than 24 months, or reduce contractual interest.
If a landlord issued court proceedings after 10 November 2021, or commences proceedings now, in respect of protected rent, either party can apply to the court for a stay of proceedings to allow the matter to be referred to arbitration. Judgment debts obtained since 10 November 2021, for debts that would otherwise qualify as protected rent debts, can also be modified through the arbitration process.
Restrictions on landlords’ remedies
Until the arbitration process has completed, a landlord will not be able to use any of the other remedies available in respect of the protected rent, or if no referral to arbitration is made, until the new moratorium period expires.
There are strategic opportunities arising from this short window for getting certain arrears processed through the Act’s new arbitration scheme. It is also important for parties to identify whether any arrears may qualify as protected rent before any traditional remedies are pursued, to avoid inadvertently breaching the moratorium.