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What Now for Tenants and Landlords?

According to some commentators, there’s an estimated £7 billion of rent arrears which have built up during the pandemic. In response to this, the government has come up with the imaginatively titled “The Commercial Rent (Coronavirus) Bill”.

This will shortly become law (on 25 March 2022 if all goes according to plan) but what is it and what does it mean?

What is it?

The longer description of the Bill on the Government’s own website is:

“A Bill to make provision enabling relief from payment of certain rent debts under business tenancies adversely affected by coronavirus to be available through arbitration; and for connected purposes.”

Essentially, it’s an arbitration scheme to sort out the backlog of commercial rent arrears which built up during the pandemic. Qualifying rents for the period will be known as “protected rent debt” (PRD). Debts incurred during this period will effectively be ring-fenced. This only covers commercial rent falling between 21 March 2020 and 18 July 2021 (or 7 August 2021 in Wales, who delayed the reopening for a number of weeks).

If you were a retailer in England then that period is shorter still because non-essential retail was allowed to re-open on 12 April 2021.

When the Bill becomes law, a 6 month moratorium will come into effect for PRDs. This will allow time for landlords and tenants to go through the arbitration process. During this time no enforcement action can be taken for the PRD, although it should be noted that business is as normal for debts falling outside of this period. This means tenants and landlords alike should pay careful attention to what period of debt they are looking at.

Once the Bill comes into force, both landlords and tenants have a window of 6 months in which to refer their dispute over the outstanding rent arrears to the arbitrator.

What’s it for really?

The aim of the arbitration is to maintain the viability of the business of the tenant and at the same time preserve the solvency of the landlord. This is a tall order if both parties are facing potential insolvency. The idea is that both parties reach agreement without the need for the arbitrator to make an award either way. Tricky times ahead for tenants and landlords alike!

Although the legislation is not yet law, it is slightly unusual in that it is in part RETROSPECTIVE and covers certain actions against tenants from 10 November 2021 up until the actual date that it becomes law. This is a very important point to note both for tenants already embroiled in a dispute and for landlords seeking to take action before the Bill is enacted. The message here is to be extremely careful before taking proceedings against a tenant for rent incurred in the lockdown period.

Loophole closed

In addition to preventing action against limited companies, the legislation closes a loophole where landlords were able to pursue bankruptcy action against sole trader/individuals making it that any bankruptcy order obtained for rent falling under the dates covered by the Bill, and being made on or after 10 November 2021, will now be void.

If you need advice on this, or any other insolvency related issue, please contact one of the team at BLB Advisory.