Landlords and tenants face legally binding arbitration over rent arrear disputes
Companies forced to close due to Coronavirus restrictions are currently protected from eviction by landlords until March 25, but a Government Bill currently before Parliament is expected to create binding arbitration following this date.
Code of Practice
The Commercial Rent (Coronavirus) Bill, which was originally announced alongside a Code of Practice by Kwasi Kwarteng on November 9, 2021 protects commercial tenants in arrears from being evicted. The aim is to encourage landlords and tenants to negotiate how to deal with these arrears and to share the cost of commercial rent debts caused as a result of closures during the pandemic.
The Code of Practice outlines the process for tenants and landlords to settle outstanding debts. But any ongoing disputes after March 25 could be settled by binding arbitration if the Bill successfully passes through Parliament.
Debts built up by the likes of pubs, gyms and restaurants as a result of their forced closure during the pandemic will be within the scope of the legislation. Any debts built up outside of these times will be excluded, as will debts resulting from the voluntary closure of a business where it would not have been forced to close under the emergency measures.
Protection from legal action will end
Since November 10, 2021, the existing legislation has protected commercial tenants from County Court Judgements, High Court Judgements and bankruptcy petitions issued against them because of rent arrears accruing during the pandemic.
However, if no agreement can be reached, then either the tenant or landlord can apply for arbitration unilaterally. The arbitration can be applied for within six months of the legislation coming into force with the tenant expected to repay the final agreed amount within 24 months.
Business Secretary Kwasi Kwarteng said at the launch: “We encourage landlords and tenants to keep working together to reach their own agreements ahead of the new laws coming into place, and we expect tenants capable of paying rent to do so.”
Support for the moves, but ‘devil is in the detail’
Kate Nicholls OBE, CEO of UK Hospitality, said: “It is in the long-term interests of landlords and tenants to come together and find solutions that ensure business survival and that do not undermine the economic recovery.
“We share government’s view that arbitration should be a last resort and this process must take into account the exceptional and existential level of pain that hospitality businesses have faced over the last 18 months. It must not impact this industry’s ability to rapidly recover and create jobs throughout the country.”
However, while Helen Dickinson OBE, Chief Executive of the British Retail Consortium, supports the principle of compulsory arbitration, she said the “devil will be in the detail on issues around what tenant viability really means in practice and the power of arbitrators”.
She added: “We will engage closely and constructively with government to help ensure their proposals protect otherwise viable businesses, secure the recovery, and protect jobs.”
We can support you if you have rental arrears
If you have rental arrears due to forced closures during the pandemic, then please get in touch so we can help support you through this difficult time.