Business landlord and tenant | rent arrears: what is the Commercial Rent (Coronavirus) Bill?
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What is the Commercial Rent (Coronavirus) Bill?
The Commercial Rent (Coronavirus) Bill ("the CRC Bill") is intended to become law before 25 March 2022. At the time of writing, it is at its committee stage in the House of Commons.
The CRC Bill will create a statutory mechanism for landlords and business tenants either to reach agreement over how outstanding rent accrued during enforced business closure should be repaid, or to refer any disagreement to arbitration.
What is "Protected Rent"?
The CRC Bill does not apply to all rent, but only to "Protected Rent". That is rent that remains unpaid from a tenancy which was (1) adversely affected by coronavirus as a result of a government closure requirement, and (2) in respect of a "protected period".
The Protected Period is from 21 March 2020, up until either the later date of 18 July 2021 (7 August 2021 in Wales) or the last day on which the tenant's premises was required to close due to the coronavirus regulations.
What happens if a landlord or tenant refer payment of "Protected Rent" to arbitration?
Under the CRC Bill, either a landlord or a tenant who have not been able to reach agreement on how Protected Rent should be repaid, have 6 months from the date that the CRC Bill comes into effect, to refer the matter to arbitration. Arbitration involves an independent person (an accredited arbitrator) making a legally binding decision as to what should happen.
The applicant may be either the landlord or the tenant. The applicant must give the other party at least 28 days' notice of their intention to arbitrate. The party receiving a notice of intention to arbitrate under the CRC Bill may respond to the notice within 14 days, although they are not obliged to respond at all.
Whether or not a response is received, the applicant can make the reference to arbitration after 28 days from service of the notice. The reference to arbitration must include a formal proposal for "relief from payment", supported by evidence.
What does Relief from Payment mean?
Relief from Payment means either:
- writing off the Protected Rent debt in whole or part;
- allowing payment of the Protected Rent debt though instalments (for a maximum of 24 months) or;
- reducing (or removing) any interest due to the landlord under the terms of the tenancy.
The other party will be given the chance to submit a counterproposal within 14 days' from receiving the formal proposal.
Following that, either party may amend their proposal within 28 days' from the date of the counterproposal (if one is given) or the original proposal.
As soon as reasonably possible after receipt of the final formal proposals, the arbitrator must determine the matter in accordance with the proposal which is most consistent with the "section 15 principles" or in any other form the arbitrator thinks is best.
The arbitrator may decide that no relief should be granted to the tenant.
What are the Section 15 principles?
The Section 15 principles include:
- The award should be aimed at restoring and/or preserving, the viability of the tenant's business in so far that that is consistent with maintaining the landlord's solvency.
- The tenant should approach the proposal on the grounds that they are required to meet their obligation to pay the Protected Rent in full and without delay.
The arbitrator must also consider the factors set out in section 16, including the tenant's assets and liabilities and any relevant financial information, and must disregard any possibility of the tenant or the landlord restructuring their business or borrowing money.
The applicant must pay the arbitrator's fees in advance, although the arbitrator may make an award that the other party reimburses the applicant for half (or some other amount) of the fees paid.
The CRC Bill also proposes a temporary moratorium period on landlords taking enforcement action to recover Protected Rent from the date which the CRC Bill is enacted, to the date on which arbitration concludes, or alternatively the last day on which the matter could have been referred to arbitration.
In addition, any existing debt claims in respect of Protected Rent, which commenced between 10 November 2021 and the date the CRC Bill is enacted, can be stayed to enable the parties to make use of the procedure set out in the CRC Bill.
If you need advice about the repayment of "Protected Rent", as either a landlord or a tenant, our Real Estate experts can help.