Rent Enforcement – The Return of Normality?

The knock-on effects are still, however, reverberating for many, including commercial landlords as they work to recoup rent arrears built up during covid-19.

The government ring-fenced covid-related commercial rent arrears from enforcement action in the UK; the general moratorium on forfeiture under the Coronavirus Act, preventing and restrictions on CRAR has now stopped. This is freeing up landlords to exercise their usual, pre-pandemic rights and remedies in relation to rent arrears – except for those that arose during (and because of) covid-19.

Specifically, these ‘ring-fenced’ arrears are generally those that accrued during the ‘protected period’ - defined as from 21 March 2020 to 18 July 2021. It is not a universal rule, however, because not every business was required to close during the lockdowns. Supermarkets, for example, were not told to close and will not have any protection - because no protected period applies to them. Most businesses adversely affected are those in the retail, leisure and hospitality sectors.

The Commercial Rent (Coronavirus) Act 2022 received Royal Assent on 24 March and extends the protection for tenants as far as covid-related commercial rent arrears is concerned. The Act makes clear that the parties will be expected to attempt to resolve disputes around rent arrears between themselves.

If the issue cannot be resolved, binding arbitration is to be used – but only as a last resort. Either party can apply unilaterally for arbitration but an application must be made by 25 September 2022 (subject to any extension by the government). Notice must be given to the other party.  Until September at the earliest, there is no return to normality insofar as the usual remedies for rent enforcement of these covid rent arrears is concerned.

Arrears could be written off

Practitioners advising commercial landlords would do well to note two key points:

1. Landlords are expected to work towards sharing the financial burden of outstanding arrears. This certainly infers that they must ensure they negotiate reasonably and even be prepared to write off some arrears to ease the pressure the tenant. Indeed, the applicant for arbitration will be require to include a formal proposal for resolution, together with supporting evidence.
3. Arbitrators will be able to exercise wide discretion, including writing off part, or even all, of the arrears outstanding. If this appears to overtly favour the tenant – it’s because it does. The Act specifically states that the principles to be followed by the arbitrator are to preserve, or to restore and preserve the business viability of the tenant (unless the landlord’s solvency is at risk).

It would therefore be in landlords’ interests to make concerted efforts to resolve the issue as efficiently and reasonably as possible to minimise the potential costs implications of arbitration – when the outcome could mean they cannot recoup some or all of the rent owed in any case.

The mechanics of the arbitration process are not yet known but the government says it will publish guidance soon. It is expected that there could be around 7,5000 arbitration cases as a result of the new Act.

BEIS is expected to publish a list of approved arbitration bodies shortly.