The Commercial Rent (Coronavirus) Bill (“the Bill”) is anticipated to become law from 25 March 2022. This is the Government’s solution to the estimated total of £7.5 billion of commercial rent arrears caused by COVID.
The Bill sets out a voluntary arbitration scheme, which allows for either a commercial Landlord or Tenant to elect to have an independent arbitrator determine a dispute in respect of the Tenant’s COVID-related rent arrears.
The Bill applies only where the Tenant’s rent arrears (including service charge, insurance, interest and VAT) accrued during the period of forced business closures, which took place during the peak of the Covid-19 pandemic, namely between the period of 21 March 2020 to 18 July 2021, and only where the Tenant’s business is in a sector which was impacted by the pandemic i.e. hospitality & nightclubs, non-essential retail, garden centres, personal care including hairdressers, hotels and tourist accommodation, port & leisure, theatres, cinemas & large event venues.
There is a THREE STAGE arbitration process:
STAGE ONE - pre-arbitration
Either the Landlord or Tenant (“the Applicant”) send notice to the other (“the Respondent”), advising of their intention to refer the matter of the Tenant’s rent arrears to an approved arbitration body;
The Respondent has 14 days to respond and, failing this, a reference can be made by the Applicant once 28 days have passed i.e. the Applicant sends written notice to an approved arbitration body (the Applicant must pay the arbitration fees in advance).
The Reference must:
(a) contain the Applicant’s formal proposal for resolving the matter;
(b) the Respondent is given the opportunity to respond within 14 days with its own formal proposal; and
(c) both parties may then submit revised formal proposals accompanied by further supporting evidence within 28 days.
The Arbitrator must consider any final proposals put forward by the parties in accordance with Section 15 of the Bill, in determining relief from payment. The Arbitrator must determine whether one or both proposals are consistent with the principles of Section 15. If only one proposal is consistent with the principles in Section 15, the Arbitrator must make an award as set out in that proposal.
Section 15 of the Bill sets out that any award should be aimed at preserving, or restoring and preserving, the viability of the business of the tenant, so far as that is consistent with preserving the landlord’s solvency; and that the tenant should be required to meet its obligations as long as this does not impact on the preservation of restoration of the viability of the tenant’s business or the landlord’s solvency.
STAGE TWO (eligibility)
The Arbitrator will determine whether the dispute falls within the scope of the Bill i.e. the matter must:
(a) relate to a tenancy of a business impacted by the pandemic;
(b) relate to a protected rent debt (i.e. rent accrued between the period of 21 March 2020 to 18 July 2021); and
(c) not yet have been resolved by an agreement between the parties.
STAGE THREE (resolution)
The Arbitrator will consider the viability of the Tenant’s business (evidence to demonstrate viability may include, but is not limited to, bank accounts, financial accounts, management accounts or profit forecasting), ensuring the preservation of the Landlord’s solvency, in determining whether to award relief from payment.
The powers available to the Arbitrator include:
(a) reducing the sum payable;
(b) providing for payment in instalments (max. 24 months); or
(c) making no award for relief from payment.
Where there is an oral hearing, an arbitrator must make an award within 14 days after the conclusion of the hearing; or, where there is no oral hearing, the arbitrator must make an award as soon as reasonably practicable after the latest final proposal is received. It is anticipated that the vast majority of cases will not require an oral hearing.
Whether you are a landlord or a tenant, it is of vital importance that your proposal to be submitted to the arbitrator is detailed, well supported with documentary evidence and tactical in that it is fully consistent with the principles of Section 15 of the Bill.
It can be seen that the Government have attempted to seek a balance between landlords being paid what they are owed and not causing business tenants to become insolvent in circumstances where the tenants can show hardship.
At RFB Legal, we can advise you in determining whether the new arbitration scheme applies to you and, if so, assist you in preparing your case for arbitration.