… Well, not quite. As I discussed in my previous blog, a new arbitration process has been introduced in the Commercial Rent (Coronavirus) Bill which commercial landlords and tenants are required to use to resolve disputes over “ringfenced” rent arrears. The Bill has not received Royal Assent as of the date of writing this blog, but we do not anticipate any changes from this stage but we will prepare a new blog if there are any surprises that impact the advice that follows.
Ringfenced rent arrears are debts accrued when the tenancy was “adversely affected” by COVID-19 and during a protected period (where at least part of the business was closed due to mandatory pandemic restrictions). That period runs from 21st March 2020 at the earliest, until the last date that restrictions were removed from that business tenant’s sector; for some that will be the 18th July 2021 but you will need to check your industry specific rules or with a Solicitor to confirm the exact length of time within which arrears will have been ringfenced. Anything else that is owed by the tenant can be pursued by the traditional debt and/or insolvency avenues immediately.
Recovering Ringfenced Commercial Rent Debts
The question for commercial landlords becomes whether to use the arbitration process to seek repayment of ringfenced rent debts, which is the only option for at least six months from 24th March 2022. The process is outlined in the diagram below, but it is crucial for landlords to understand that the decision of the arbitrator will be based on principles of business viability and solvency – the aim of the scheme is simply stated as being to preserve viable businesses.
If the landlord can produce evidence that the tenant’s business is not viable, or that their business would not have the potential of viability even if given a discount on the debt by the arbitrator, then the case will be found in the landlord’s favour and they will be able to use the usual methods of enforcement against the tenant. However, if the arbitrator considers that relief from part or all of the arrears could allow the tenant’s business to be viable, the arbitrator can write off some or even all of the ringfenced debt, freeze or reduce interest charges, and allow the tenant to pay in instalments over a maximum of two years. However, any such relief to a tenant has to be balanced against the impact it could have on the landlord’s solvency. In simple terms, the arbitrator should not be doing the tenant any favours if it could put the landlord out of business.
It therefore seems that, as is often the case, the decision may well come down to who can produce the strongest and most conclusive evidence. While the Code of Practice published on 9th November 2021 provides some indications of what to put forward on your behalf, commercial landlords and tenants should seriously consider taking legal advice to ensure the best case is being made for your unique circumstances, with the evidence at your disposal.
The Code also makes it clear that if it is affordable for a tenant to pay the arrears in full, that is what they have to do without delay; the arbitration scheme is a last resort and commercial landlords and tenants should negotiate their own agreements wherever possible.
If you would like some advice in relation to any commercial rent arrears, ringfenced or not, please get in touch with our Commercial Litigation team by phone on 0845 287 0939 or sending your enquiry through our online contact form.