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| 2 minutes read

COVID rent arrears - who pays the bill?

The government announced in June this year the introduction of a 'binding arbitration' to deal with commercial rental debt accrued during periods of closure due to the various lockdowns since March 2020 . At the same time, it also extended for a fifth time the protections for commercial tenants from forfeiture of their leases for unpaid rent until March 2022, by which time the promised legislation would be in place to address the estimated unpaid £7billion rental bill.

Since then, those like us who are advising landlords and tenants who will be affected by the proposals have been eagerly awaiting the day when more detail is available of how the proposed scheme will work, to best advise clients how to proceed. Today saw the announcement of a new Code of Practice and a draft Commercial Rent (Coronavirus) Bill, with a lot of detail to review and digest.

The new Code reiterates that negotiations must remain the first step where tenants are unable to pay in full and will apply across all of the UK. The Bill has been through its first reading in the House of Commons today and whatever form the final legislation takes, will only apply in England and Wales. The legislation is intended to be in place from 25 March 2022 and the Code will support those ongoing negotiations until the new arbitration process comes into force.

While digesting the detail, the press release does give some further indication of what will be covered and there are some eye catching points that we will explore and report back on more fully. It seems that the proposed arbitration scheme and protections will only bite when businesses have been forced to close since March 2020, rather than those who have made a commercial decision to close. Operators such as pubs, gyms and restaurants - the leisure and hospitality sectors most impacted - are specifically mentioned as the types of business the Bill will apply to. Debts for other periods other than 'mandated closures' will not be covered by the legislation and parties will need to find another way of resolving any dispute over rent owed for those periods.

The press release also mentions that from today commercial tenants will be protected from debt claims, including CCJs and personal bankruptcy petitions, where these relate to claims issued for rent arrears accrued during the pandemic. What this means in practice, not least for the string of recent cases where the courts have already granted landlords summary judgment for pandemic rental debt, remains to be seen and whether any restrictions on enforcement of judgments already obtained will be retrospective, which would be a very significant step.

From today, the government is also protecting commercial tenants from debt claims, including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions, issued against them in relation to rent arrears accrued during the pandemic.


rent arrears, commercial property, arbitration