The Commercial Rent (Coronavirus) Act 2022 (“the Act”) came into force on 24 March 2022. The purpose behind the Act is to extend the protection which was given to commercial tenants during the coronavirus pandemic. It also has an aim of giving commercial landlords comfort that they are able to take steps to attempt to recover unpaid ‘protected rent debts’ from a tenant who was ‘adversely affected’ by the coronavirus pandemic which occurred during the ‘relevant period’ by imposing mandatory arbitration (if not resolved by agreement).
What are some of the key factors of the Act:
- What arrears does the Act relate to?
The Act relates to any ‘Protected Rent Debts’ which have been incurred by business tenants who have been adversely effected by coronavirus.
Rent is defined in the act as any amount payable by the tenant for possession and use of the premises, service charge, interest on unpaid amounts and VAT.
‘Protected Rent Debts’ means ‘rent’ under a business tenancy is protected if it was adversely affected by coronavirus and it is attributable to a period of occupation by the tenant, or within, the protected period.
- What does ‘adversely affected by coronavirus’ mean?
A business tenancy is adversely affected by coronavirus if the whole or part of the business was subject to a closure requirement during the ‘relevant period’, which is a period beginning at or after 2pm on 21 March 2020 and ending at or before 11.55pm on 18 July 2021 (for English business tenancies).
- What is the process for referral?
Parties should attempt to negotiate and resolve the matter between themselves in the first instance.
A reference to arbitration can be made by either the landlord or the tenant, and the person making the reference will be the ‘applicant’ and the other party will be the ‘respondent’.
The applicant must notify the respondent of their intention to make a reference and the respondent then has 14 days to submit a response. A reference to arbitration can only be made after the 14 day period after the date the response is received, or if no response is received, after 28 from the date the notification was served.
A reference must include a formal proposal for resolution and be accompanied by supporting evidence containing a statement of truth. The respondent then has 14 days to serve their response and supporting evidence. The parties can put forward revised proposals with further supporting evidence within 28 days of their first proposal.
The arbitrator will consider the matter without a hearing, unless one is requested by either party.
- Are there time limits for applications?
Yes, six months from the date the Act was passed.
If a landlord and tenant has not been able to agree a resolution, then either party can apply for arbitration within six months from when the Act was passed. This means that the notice of intention must be served within five months of the Act passing to ensure that the 28 day period is complied with before making a reference.
The government does, however, have the power to make regulations extending this six month period.
- What awards can the arbitrator give?
An arbitrator can dismiss the reference if the parties have agreed a resolution, if the tenancy is not a business tenancy, if the rent is not protected, or if the business is not viable.
If the business is viable, the arbitrator can make an award giving the tenant some form of relief from payment or state that the tenant is to be given no relief. Relief could include writing off all or part of the debt, giving time to pay by instalments (a maximum of 24 months from the date of the award) and/or reducing the interest payable. The arbitrator will look at the proposals submitted by the parties and both the preservation or restoration of the tenant’s business as well as the preservation of the landlord’s solvency.
- Who pays the costs?
Legal fees in connection with the arbitration are not recoverable.
The applicant pays the costs for the arbitration in advance, but if an award is made under section 13 or 14 of the Act, the arbitrator must also make an award requiring the other party to reimburse the applicant for half of the arbitration fees paid. If an oral hearing is requested, then the general rule is that the costs of the oral hearing are to be paid by the party requesting it, or equally by both parties if they both make a request.
This is just a snapshot of some of the key features. Landlords and tenants should both consider obtaining independent legal advice on any business rent arears to assess if the Act is relevant for their particular case and, if it is, that the correct procedure is followed. It will be interesting to see how cases progress over the next six months.
*This is not legal advice; it is intended to provide information of general interest about current legal issues.