Returning the Market to ‘Normal’: New Laws and Code of Practice to resolve remaining COVID-19 Commercial Rent Debt Disputes

17 November 2021

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New Changes

On 9 November 2021, the UK Business Secretary announced new laws and a Code of Practice that will try to resolve the remaining commercial rent debt accrued during the COVID-19 pandemic.

The Commercial Rent (Coronavirus) Bill will be introduced into Parliament to establish new laws from 25 March 2022, providing a legally binding process to resolve remaining commercial debts through an arbitration procedure. In the interim, the new Code of Practice will pave the way, setting out how landlords and tenants should negotiate and settle outstanding debts.

These changes apply to businesses which were instructed to close by the Government from March 2020 until the date restrictions for their sector ended. With the primary purpose of returning the market to a state of normality, these changes will help protect tenants from debt claims against them.

These changes will apply to England and Wales, but it is anticipated that Northern Ireland will follow with similar legislation in the near future.

Code of Practice

Pursuant to government intervention last year, commercial tenants are protected from eviction until 25 March 2022. This was implemented in order to provide businesses with breathing space, to protect jobs, and to allow a period of time for landlords and tenants to negotiate and come to a resolution on rent arrears. As of 9 November 2021, the new Code of Practice reinforces these negotiations, and provides clear guidelines for settling outstanding debts on commercial rent.

The Code of Practice re-iterates that, tenants unable to pay in full should firstly try to negotiate with their landlord, in the supposition that the landlord may waive all or some of the arrears, and share the burden.

The Code of Practice sets out what the arbitration process will look like and the key principles of fairness, affordability and viability that it will follow. It further states that where a tenant can fully meet their obligations under the lease, they should. Further, it asserts that the preservation of the tenant’s business viability should not be at the expense of the landlord’s solvency.

Commercial Rent (Coronavirus Bill) & the Arbitration Process

When the Bill becomes law on 25 March 2022, it will introduce a system of binding arbitration. This process will be available to those parties within scope, who have exhausted their negotiations and have been unable to reach an agreement on their commercial rent arrears.

The applicants must apply within six months from the date the legislation comes into force and can apply directly to the approved arbitration body for their dispute resolution.

The Government will also be protecting commercial tenants from debt claims, including county court and high court judgments as well as bankruptcy petitions issued against them in relation to rent accrued during the pandemic.

This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

If you have any queries or require further advice, please contact a member of the Carson McDowell Real Estate team.

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