Insight

Covid 19 – New Code Of Practice and binding arbitration

On 9 November 2021, the Government announced a new Code of Practice to govern the settlement of rent arrears that have accrued due to the Coronavirus pandemic.  This Code of Practice is to take effect immediately and, in particular, provides:

  • that the landlord and tenant are to negotiate the settlement of the arrears;
  • it is expected that the landlord should waive some or all of the arrears, where it is able to do so; and
  • provides “a clear process for settling outstanding debts before the new arbitration process comes into force”.

New rules and what this means for commercial Landlords and Tenants

At the same time the Government published its draft Commercial Rent (Coronavirus) Bill, which had its first reading on 9 November 2021.  The Bill provides for a “binding arbitration” which is to come into force on 25 March 2022 and, notably, contains the following:

  • it will relate to all the rents which have accrued from 21 March 2020 until 18 July 2021, or earlier, where the restrictions were lifted prior to that date in relation to the business carried on by the tenant, and is referred to as “protected rents”;
  • a temporary moratorium on enforcement of protected rents will apply from the date the Bill is passed until 6 months after that date or, where an application to the arbitrator has been made, the date of determination by the arbitrator;
  • where the matter has been referred to arbitration, a temporary restriction on insolvency proceedings in relation to the protected arrears will apply;
  • the landlord will be prevented from using CRAR or forfeiting the lease in relation to the protected rents, during the period of the moratorium;
  • the Secretary of State will approve one or more bodies as arbitrators;
  • the arbitration procedure; and
  • that the arbitrator’s “principals” are to preserve or restore and preserve “…the viability of the business of the tenant so far as it is consistent with preserving the landlord’s solvency”;
  • however, the tenant will be required to pay the rents but only where it is consistent with the aforementioned principle.

These last two points, coupled with the requirement of the new Code of Practice that the landlord should, if able to do so, waive the arrears, would suggest that the Government is looking to landlords to bear the loss of rents due to the Coronavirus pandemic.

The Bill still has various other stages to pass through (second reading – yet to be announced – and then readings in the House of Lords) before it receives Royal Assent.

However,  given that the earlier bills relating to the Coronavirus have passed though both Houses and received Royal Assent within a fairly short period of time and that the objective of the Bill is to preserve businesses, it will not be surprising if the Bill also receives its Royal Assent within a short period of time.

We shall be tracking the process of the Bill and will be providing further updates.

 

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