In light of the COVID-19 pandemic from 21 March 2020, the government introduced a range of temporary legislation measures which have restricted a Landlord's ability to:
While from 1 October 2021, restrictions on other unsecured creditors have largely been lifted, in regards to landlords, the restrictions outlined above remain in place until 25 March 2022. Instead, the Commercial Rent (Coronavirus) Bill and an updated Code of Practice were released on 9 November 2021, which together guide landlords and tenants about pandemic rent debts, introduces a proposed arbitration scheme (to be put in place following enactment of the Bill on 25 March 2022) and continuing prevention on the enforcement of ‘protected debts’.
Protected debts are those incurred where a business was subject to 'closure requirements', or subject to a 'specific coronavirus restriction'. In England, closure requirements were in place until 18 July 2021, albeit there are different dates applicable to different sectors up until that date. The Bill will not protect a tenant for rent arising outside of the relevant period, and the arbitration process will only apply to protected debts/rent. The Code suggests that, in the meantime, every effort should be made for the landlord and tenant to reach their own settlement before reverting to the arbitration process. For a tenant, the code provides that a tenant should meet its obligations under the relevant period in full, where affordable, although the tenant should not have to take on more debt or restructure the business simply to pay the protected debt/rent.
The intention of the arbitration process is that it will impose a legally binding agreement upon the landlord and the tenant, resolving rent arrears disputes and helping the market to return to normal as quickly as possible. While the parties are free to continue to negotiate outside of the legal arbitration process once it comes into force, the window to apply for arbitration will be 6 months from the date legislation comes into force. The maximum time frame to repay any arbitration award will be 24 months. The Bill relates to a protected rent debt where rent is due under a tenancy that was adversely affected by the pandemic. A business tenancy is considered to have been adversely affected during the relevant period where the whole, or part of the premises was of a description, subject to a closure requirement. This is assessed on a business by business basis.
After assessing the viability of a tenant’s business, if the arbitrator determines that, at the time of assessment, the business is not viable and would not be viable even if the tenant were to be given relief from payment of any kind, the arbitrator must make an award dismissing the reference.
The arbitrator’s principles are that any award should be aimed at preserving or restoring and preserving the viability of the business of the tenant so far as that is consistent with preserving the landlord’s solvency.
The arbitration process will not apply to rent arrears accrued outside of the relevant period.
At the moment the legislation is in draft and there are no real details of how the arbitration process will work in practice, what evidential requirements will be imposed etc. As a result, it may not be sufficient for directors to simply rely on the forthcoming arbitration process, but instead, further pro-active steps should be considered and a plan of action drawn up including a variety of scenarios that will avoid a possible administration or liquidation.
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A moratorium procedure as introduced by the Corporate Insolvency and Governance Bill 2020