The Commercial Rent (Coronavirus) Act 2022 (CR(C)A 2022 / the Act) came into force on 25 March 2022 to provide commercial tenants, whose businesses were required to close during the COVID-19 pandemic, with continued and extended protection against action by their landlords to recover unpaid rent and service charge debts which fell due during the period of mandated closure. The Act does this by ringfencing the debt and establishes a binding arbitration process to facilitate an agreement between landlords and tenants who have not yet reached an agreement on what happens to that ring fenced debt.
An updated Commercial Rent Code of Practice (the Code) sets out the arbitration process and provides clarification on certain aspects of the Act.
The Act applies in relation to premises in England and Wales (although the use of and adherence to Part One of the Code is encouraged in Scotland and Northern Ireland where appropriate and by any business struggling with rent arrears even if it falls outside the scope of the Act). Businesses that were not mandated to close but were adversely affected by the closure of other businesses that were mandated to close or where it was uneconomical for businesses to open, fall outside the scope of the Act.
The protected period and categories of debt eligible for protection: CR(C)A 2022 ss 2-5
To qualify as a protected rent debt , the debt has to be a commercial rent debt due under a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies(1) and includes rent, service charge, interest on arrears, possession and use, rent deposits and VAT provided the whole or part of the business or premises were adversely affected by coronavirus which sums are attributable to the protected period.
Premises were adversely affected by coronavirus if the whole or part of the business of premises were subject to a closure requirement imposed by the coronavirus regulations for any relevant period which is defined as beginning at 2pm on 21st March 2020 and ending at or before 11:55pm on 18th July 2021 for English business tenancies and at or before 6am on 7th August 2021 for Welsh business tenancies.
The relevant period ends when the restrictions ended which will vary depending on when the business in the relevant sector was permitted to re-open. The protected period includes times when the business was subject to regulation as to how it was operated, for example limits in hospitality numbers, and not just when it was required to close. The Act prescribes the end date for each relevant sector and a guide to protected periods for certain sectors is in Annex A to the Code.
The moratorium period and the restriction of landlord remedies: CR(C)A 2022 s9
The Act has introduced a moratorium on protected rent debts for six months commencing 24 March 2022, or if applicable, until the award is made, during which time landlords are prohibited from exercising the following remedies against tenants in respect of protected rent debt:
- Commencing debt proceedings.
- Forfeiture of the lease.
- Drawing down from the tenant’s deposit.
- Presenting a winding-up petition against a company tenant (with regards to a protected rent debt).
- Commercial Rent Arrears Recovery.
- Presenting a bankruptcy petition against an individual tenant.
Although landlords were not prevented from issuing proceedings to recover arrears including protected rent debt during the previous moratorium on enforcement action, proceedings issued between 10 November 2021 and 25 March 2022, where judgment has not yet been awarded in respect of protected rent debt, can be stayed on an application by the landlord or the tenant.
The Arbitration Scheme: Part 2 CR(C)A 2022
The Act introduces a binding arbitration process to facilitate an agreement between the landlord and tenant as to how the protected rent debt should be dealt with. Either the landlord or the tenant can make a referral to the scheme within the moratorium period although only viable tenant companies qualify. The tenant must therefore be in a good financial position.
If a consensual deal has already been entered into between the landlord and the tenant, the arbitration cannot override that deal.
If it is possible for a tenant to pay their outstanding protected rent debts outright, then it should not use the scheme and should pay the debt promptly.
Guarantors are unable to begin the process. They will either need to persuade the tenant to do so or obtain authority to act on the tenant’s behalf. Guarantors and previous tenants will however benefit from any relief from payment and from the moratorium period on enforcement.
The party that makes the referral will make a proposal for how the protected rent debt should be dealt with. This might include debt write off, a repayment plan or a combination of both. The responding party may make counterproposals.
Arbitration Awards ss 13-18 CR(C)A 2022:
The arbitrator will consider both parties’ proposals and decide with reference to the viability of the tenant’s business and what the tenant can afford to pay, whilst considering the landlord’s ability to suffer any loss.
Arbitration fees ss19-20 CR(C)A 2022:
The arbitrator must make a decision as soon as reasonably practicable or within 14 days of any hearing. The arbitrator’s award is legally binding upon the parties.
The parties are likely to have to share the arbitrator’s fee but will be responsible for their own legal costs.
The Secretary of State has approved the following arbitration bodies ss 7-8 CR(C)A 2022:
- Chartered Institute of Arbitrators (CIArb)
- Royal Institute of Chartered Surveyors (RICS)
- Consumer Dispute Resolution
- Falcon Chambers Arbitration
- Dispute Resolution Ombudsman
- London Chamber of Arbitration and Mediation (LCAM)
- The Consumer Code for Online Dispute Resolution (CCODR)
Arbitrators can make the following awards s6 CR(C)A 2022:
- Write off all or part of the debt, including the interest on protected rent.
- Payment deferral for a period of up to 24 months from date of the award.
- Grant no relief, or remedy.
Once an arbitrator has made an award, a landlord
- cannot attempt to make up for any difference in lost rent from guarantors or through rent deposits,
- but if it the award is not complied with, the landlord can use its usual powers of enforcement under the relevant lease.
If neither party makes a referral during the moratorium period then, at the end of that period, the usual landlord remedies referred to above will become available in relation to protected rent debt.
Further reading
(1) Broadly, this means the Act applies to leases where the tenant is operating a business from the premises whether the tenancy is protected by the Landlord and Tenant Act 1954.
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