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Commercial Rent Arrears – New Code of Practice and Arbitration Scheme

The Commercial Rent (Coronavirus) Bill was introduced in Parliament on 9 November 2021, concurrently with a revised Code of Practice to be used by landlords and tenants in order to resolve disputes in relation to unpaid rent arrears. The government aims to pass the Bill by 25 March 2022, subject to parliamentary approval.

The Bill will introduce a statutory arbitration process for commercial landlords and tenants in England and Wales who have not already reached an agreement over rent arrears. The arbitration process will be a last resort aimed at landlords and tenants sharing the financial burden caused by COVID-19. Any agreements made voluntarily before the Bill comes into force will not be affected.

The Bill, as currently drafted, only applies to tenants who were mandated to close their premises (in whole or in part) or cease trading as a result of the coronavirus regulations; and where the lease of the premises constitutes a business tenancy. In relation to those tenants, it is only unpaid rent arrears relating to a defined ringfenced period (“protected debt”) which are the subject of the Bill and which are capable of being referred to arbitration.

Absent guidance from the Government, the arbitrators themselves will seemingly have a very wide discretion to determine disputes, including whether to dismiss the referral to arbitration at the outset. This undoubtedly will create a significant amount of uncertainty for landlords and tenants as to what the result of any arbitration process might be.

While the statutory arbitration is in progress, the other remedies available to landlords will be temporarily unavailable, to give priority to the arbitration process.

In respect of debt claims relating to protected debt which are made on or after 10 November 2021, but before the day on which the Bill is enacted (expected to be 25 March 2022), either the landlord or the tenant can apply for the proceedings on the debt claim to be stayed, so that the payment of the protected rent debt can be resolved through other means including arbitration under the Bill.

If such an application is made, the court is required to stay the proceedings. At present, however, it does not appear there is an ability under the Bill to stay proceedings that were issued by landlords prior to 10 November 2021.

 

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.

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