Commercial Pandemic Rent Arrears - Update

On 9 November, the Government announced that new laws will be laid before Parliament establishing a new legally-binding arbitration process to be introduced on 25 March 2022.

The arbitration process is designed to determine issues between commercial landlords and tenants where there are rent arrears outstanding for periods where premises were required to close (in full or in part) as a result of the pandemic. 

Whilst the announcement focuses on the hospitality sector, it does not exclude office occupiers.

Whilst this was not unexpected and has been on the horizon for several months, the news from the announcement is the Government’s intention to introduce measures to protect commercial tenants from debt claims, County and High Court Judgments and bankruptcy petitions being issued against them. And as a result of the arbitration being legally binding, it appears the Courts will no longer have the ability to deal with pandemic rent arrears issues (except those outside the scope of the arbitration e.g. in sectors not forced to close or for arrears which fell due when a business was open and trading) – it is not clear what will happen with Court proceedings already issued.

The announcement suggests that the window for commencing the arbitration will be 6 months from the date the legislation comes into force and that the maximum period an arbitrator will be able to award for payment of rent arrears will be 24 months. 

At the same time, the Government has introduced an updated and strengthened Code of Practice, and this serves as a further warning to any commercial tenants who can pay, that they must pay. It also re-iterates the very clear advice for commercial landlords and tenants to reach agreements between themselves and/or look to resolve issues by way of Alternative Dispute Resolution rather than to wait for the arbitration window to open.

Whilst the British Property Federation has survey data indicating more than 80% of pandemic rent arrears issues have been agreed between the parties since the start of the pandemic, that still leaves a significant number of cases still outstanding.

As is frequently the case, we await the detail with great interest in order to understand the potentially wide ranging consequences.

If you would like to know more about Commercial Rent Arrears or what they mean for your business, please contact David Haines or your usual Charles Russell Speechlys contact.