The government’s Commercial Rent (Coronavirus) Bill and revised Code of Practice
On 9 November 2021, the Government published a new Code of Practice for commercial property relationships following the Covid-19 pandemic ("the Code") and the Commercial Rent (Coronavirus) Bill was presented to Parliament. It is intended that the Bill will complete its passage through Parliament and become law on or before 25 March 2022.
Commercial Rent (Coronavirus) Bill
Below is a summary of key provisions of the Bill as they affect parties to leases of commercial property in England, which may be subject to change as the Bill progresses.
What tenancies does the Bill apply to?
The Bill seems to be narrower in scope than the Code. It expressly covers any business tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies
What payments does the Bill cover?
The Bill creates the concept of a "protected rent debt". The definition of rent extends to any amount payable for use of the premises whether or not described as rent, service charge, insurance, interest and VAT. It also includes drawing down on a rent deposit.
Rent is "protected" if:
- the tenancy was "adversely affected by Coronavirus"; and
- the rent accrued during a period ring-fenced by the Bill, which is known as "the protected period".
If premises or parts of premises were subject to a closure requirement during the Coronavirus pandemic, they will be regarded as adversely affected by Coronavirus. For these purposes, it is irrelevant that specific activities could continue, such as takeaway food from a restaurant.
What is the protected period?
The protected period begins on 21 March 2020 and ends on or before 18 July 2021, depending on the closure requirements or specific coronavirus restrictions for that particular business. The end of the protected period is the last day the business was subject to a closure requirement or a “specific coronavirus restriction”. This means that the protected period will vary from business to business. By way of example, for a non-essential shop, the protected period is generally 21 March 2020 to 12 April 2021 (when non-essential shops reopened in England).
Does the Bill impose restrictions on action to enforce payment of protected rent?
Yes, a temporary moratorium is introduced from the passing of the Bill (and in some cases, as indicated below, from 10 November 2021) prohibiting the following enforcement methods for non-payment of ring-fenced rent:
- issuing Court proceedings (or making a counterclaim) to recover a debt (these provisions apply from 10 November 2021). On application by a landlord or tenant, the Court must stay proceedings issued after 10 November 2021 unless they are outside the scope of the Bill. In addition, no enforcement action may be taken for outstanding Judgments for protected rent entered on or after 10 November 2021 although they may be referred to the arbitration scheme;
- exercising CRAR;
- forfeiture for non-payment of protected rent;
- drawing down on a rent deposit (where a drawdown has occurred before the Bill is passed, the tenant is not required to top up the rent deposit);
- presentation of a winding up petition against a business tenant; and
- presentation of a bankruptcy petition against an individual commercial tenant where a statutory demand was served on or after 10 November 2021.
The moratorium applies until the conclusion of arbitration or, if no reference to arbitration is made, 6 months after the Bill is passed.
What restrictions apply before the Bill is passed?
For a reminder of the current restrictions which will remain in place until March 2022 (unless lifted before then), please click here for our insight: The impact of Covid-19 on commercial and residential tenancies and see our Quarter Day page.
This took effect from 9 November 2021 and replaces the existing Code of Practice first issued on 19 June 2020. A copy of the new Code can be found here.
Key points of the new Code are:
- It represents best practice and applies to all commercial leases held by businesses with rent arrears (including sums owed for service charges and insurance) accrued due to the impact of the Covid-19 pandemic.
- It explains how the new arbitration scheme will work for ring-fenced arrears.
- There is a continuing expectation that tenants who are able to pay their rent in full should do so.
- The viability of the tenant’s business is paramount but not at the expense of a landlord’s solvency.
- Landlords and tenants are encouraged to be transparent and exchange information as to their circumstances.
- Annex A to the Code contains a list of mandated closures due to Covid-19.
How will the binding arbitration scheme operate?
Landlords or tenants may refer a dispute over the payment of protected rent to the binding arbitration scheme within 6 months of the Bill becoming law. There are certain steps which must be taken by the parties before a reference can be made and a clear timetable is set out in the Bill for once a reference has been made. (See also Annex C to the Code.)
The arbitrator will consider the viability and solvency of the tenant's business (as well as the landlord’s solvency) and has the power to dismiss a reference or to award a relief from payment. Relief can include writing off all or part of the outstanding sums, giving further time to pay in instalments or reducing interest payable. Any repayment arrangement directed by the arbitrator cannot be for more than 24 months.
Do the Code or the Bill affect existing agreements?
No. There is a clear intention that any existing agreements as to the payment of protected rent are unaffected.
What about arrears falling due after 18 July 2021?
The Bill does not currently apply to any arrears accrued either before 20 March 2020 or after 18 July 2021. Therefore, a landlord may issue debt proceedings for any arrears outside the scope of the Bill, subject to compliance with the Code. Restrictions remain, however, on other enforcement methods, which we have brought together in our Quarter Day page.
There have been a series of cases in the Courts where landlords have obtained summary judgment in respect of pandemic arrears, which may remain relevant to those arrears falling outside of the scope of the Bill. Summaries of the key cases can be accessed using the links below:
- Commerz Realinvestmentgesellschaft mbh v TFS Stores Limited is summarised here and covered in more detail here;
- Bank of New York Mellon (International) Ltd v Cine-UK Ltd is summarised here - although this case is being appealed; and
- London Trocadero (2015) LLP v Picturehouse Cinemas Ltd is summarised here – although this case is being appealed
For more information, please contact any member of our Real Estate Disputes Team or your usual Charles Russell Speechlys contact.