The Commercial Rent (Coronavirus) Act

After the government has issued many press releases heavy on ideas yet light on detail, the Commercial Rent (Coronavirus) Act is now in force, and the long moratorium has ended. Our property litigation team at Harrison Drury provides an overview.

The Commercial Rent (Coronavirus) Act is how the government plans to resolve ‘protected rent’ disputes. The intention has been to create a streamlined process of resolving commercial rent arrears accrued during the pandemic, subject to meeting the requirements.

Throughout the process from Bill to Act, many criticisms and comments have been written about the intricacies of the Act, with the legal and property sectors watching with a speculative eye on the outcome. There remains speculation over some areas.

Summary of the Act

• What is the purpose of the Act?

Summarised neatly by the Bill itself, the Act’s purpose is to enable “the matter of relief from payment of protect rent debts due from the tenant to the landlord under a business tenancy to be resolved by arbitration (if not resolved by agreement).”

• What are the key principles of the Act?

If a tenant was subject to compulsory closure, then rent arrears accruing during the ‘protected period’ so long as it is rent, are protected. If a tenant was not subject to compulsory closure, the Act cannot assist in resolving disputes concerning arrears.

• What is considered as commercial rent?

Any amount payable for ‘possession and use’, including service charges, insurance costs, and interest on those sums.

• What is relief from payment?

The Bill aims to address whether a tenant should be given relief from payment of a protected rent debt. Relief can mean either:

1. Full or partial write off;
2. Deferral of the debt on terms for up to 24 months; or
3. Reducing or writing off interest on the debt.

• What is the protected period?

Generally speaking, the overarching protected period is from March 21, 2020, until the last day the tenant faced restrictions. However, the end date depends on your relevant sector.

• How can the protected period be calculated?

The Commercial Rent Code of Practice 2021 contains a useful table which can be used to work out the last day of the protected period for the following sectors:

Applications and Arbitration

• When can you start making applications?

Either landlord or tenant can apply but applications must be made within six months from March 24, 2022, which is the day the Act came into force. This may be subject to extensions, but we will have to wait and see.

• Are there conditions to apply?

Yes, one party must notify the other party of its intention triggering a 14-day response period. If the other party responds, an application must be made at least 14 days after the response. If there is no response, an application may be made 28 days after the notification.

• Who are the arbitrators and what will they take into consideration?

There is still little information on this, but what we do know is that the government will appoint approved arbitration bodies which are expected to be published online in due course.

• What will the arbitrator look at?

The arbitrator will look at the tenant’s business and make a determination based on viability, affordability and landlord solvency.

• Who pays the fee for the application?

Arbitration costs are to be confirmed, but the government does have the power to impose fee caps. The applying party pays the arbitration fees and if an award is made, the other party will be ordered to cover an appropriate portion of those fees. If it gets to an oral hearing, the party making the request pays the hearing fee or they are split if both parties request the hearing. The arbitrator can then make the same award for split fees.

What if the rent is not protected?

The moratorium has now ended in relation to commercial evictions and if you do not fall within the protected period, landlords in England and Wales will be able to forfeit a lease, use CRAR or issue winding up petitions.

The rules are slightly different for Wales, and the provisions of the Coronavirus Act 2022 will not expire until September 24, 2022, as opposed to England’s date of Friday March 28, 2022.

Despite the scheme’s intention to make things easier for those concerned, landlords and tenants will certainly still have many questions regarding the process. If you wish to discuss the scheme and how to apply, or if you are uncertain as to whether you fall within the protected period and what options are available to you, please contact Harrison Drury’s property litigation team on 01772 258321.