UK Real Estate Insights
The Commercial Rent (Coronavirus) Bill 2021-2022 (the “Bill”) is currently making its way through parliament and set to be passed into law on 25 March 2022. Once the Bill is passed, a new arbitration scheme will be introduced to deal with COVID -19 commercial rent arrears that arose as a result of the requirement for non-essential businesses to close during the pandemic. In our previous articles on the proposed Bill (Parts 1,2 and 3) we explored the immediate impact of the Bill and discussed how we anticipate the new arbitration process playing out in practice. We also pointed out a number of problematic issues.
In terms of amendments to the Bill so far, provisions have been inserted to clarify: (i) that the party that has paid the arbitrator’s fees should be reimbursed half of the amount (unless the arbitrator decides it should be a different proportion); (ii) other than the reimbursement of arbitration fees, each party is to bear their own legal and other costs; and (iii) other amendments have made clear that guarantors are to have the same protections under the Bill as tenants, in that they are not regarded as being in breach of covenant provided the tenant or they comply with the terms of the arbitrator’s award.
More recently, draft statutory guidance on the Bill was published on 23 February 2022 by the Department for Business, Energy & Industrial Strategy (BEIS) on how arbitrators should exercise their functions under Part 2 of the Bill. The scheme itself is unprecedented and grants significant powers to arbitrators to make awards and impose terms that take precedence over existing lease obligations. The draft guidance discusses the Bill’s provisions which are relevant to arbitrators and explains how arbitrators should carry out their role in the new process.
The key takeaways from the guidance include:
This guides the arbitrator in considering the tenant’s viability against the solvency of the landlord.
The government has published the draft with a view to engaging with stakeholders in developing its contents. While this does mean that the guidance is subject to change, at this stage the guidance helpfully provides some insight as to how the proposed arbitration scheme is intended to operate, particularly in relation as to how arbitrators are to assess the ‘viability of a tenant’s business’. The above list of evidence an arbitrator is to consider when making their award will provide guidance to landlords and tenants who may be considering using the scheme once the Bill receives royal assent (expected 25th March 2022). Given the Bill only provides a 6-month window for the arbitration scheme beginning from commencement of the Act, landlords and tenants may wish to get ahead and begin collating information and preparing proposals ahead of this date.
Importantly, the current moratorium preventing a landlord from exercising CRAR, forfeiture and insolvency enforcement ends on the 25 March 2022. Landlords will likely be considering their options in respect of arrears owed by tenants generally and may concentrate on those tenants who are not protected as their businesses were not mandated to close during the pandemic.