During the Covid lockdown, many businesses unable to trade or use their premises fell into arrears with their commercial rent. Although businesses are generally up and running again, many have found difficulties in catching up with these arrears.
This has obviously also impacted on landlords’ finances, but the government’s Commercial Rent (Coronavirus) Act 2022, which came into force on 24th March, has set out principles for addressing these issues.
Protected Rent Debts
Any commercial rent debt that resulted from enforced closure during the pandemic is classed as a “Protected Rent Debt”, and these are the only debts to which the Act applies. Qualifying periods can’t be earlier than 21st March 2020, and will finish either on 18th July 2021 (7th August in Wales) or the last day on which the business was subject to restrictions — whichever was earlier.
All rent-related debts can be included as Protected Rent Debts. Besides the principal rent, this can include interest, VAT and service charges.
The Arbitration Process
The Act provides for a six-month window when either party can apply for arbitration concerning a Protected Rent Debt, although the government encourages the parties to try to come to terms themselves before resorting to this. The arbitration, which is binding, has the power to give a number of decisions:
- All or part of the debt may be written off.
- All or part of the accrued interest may be written off.
- The tenant may be allowed up to 24 months from the date of arbitration to pay.
- The tenant may be allowed to pay off the debt in instalments.
- The referral may be cancelled, if the arbitrator feels that the tenant’s business isn’t viable, allowing the landlord to pursue other avenues.
If a debt claim was made between 10th November 2021 and 24th March 2022, a request to stay it can be made by either party. Any judgement already made can’t be enforced till the end of the moratorium period.
A Six-Month Moratorium
Until the arbitration is delivered, or until the six months has expired without a referral being made, there are restrictions on remedies the landlord can seek over a Protected Rent Debt. They can’t:
- Forfeit the lease.
- Use CRAR (Commercial Rent Arrears Recovery).
- Issue any debt claims on either the tenant or any guarantor.
- Take any draw-down on the deposit the tenant has paid.
All these measures will become open to the landlord if the arbitrator decides to cancel the referral.
What Does This Mean for You?
This depends, of course, on whether you’re a landlord or tenant. If you owe commercial rent as a direct result of the pandemic, it can give you a breathing-space to find the money. If you’re a landlord, the measures may seem to your disadvantage, but they may well offer the best opportunity for recovering as much of the owed rent as possible.
The best option, though, is for the two parties to negotiate directly and come up with a solution that offers maximum benefit to both. Give me a call if you’re in this position, to see if I can help with the process.