Commercial rent debts
New proposals for ring fenced debts
Late on 9 November the Government published the Commercial Rent (Coronavirus) Bill 2021 to implement the binding arbitration scheme announced on 18 June. The scheme is intended to resolve commercial rent debts which arose as a result of the coronavirus pandemic. The Bill is expected to become law by 25 March 2022.
Throughout the pandemic the Government message has been that tenants who can pay should pay and it would intervene to protect jobs in viable businesses which were forced to close by Government restrictions imposed on grounds of public health. For the first time the Bill clarifies the “ring fenced” rents and sectors the Government has been keen to protect.
The Bill applies to “Protected Rent Debts” due in a “Protected Period”.
The “Protected Period” starts on 21 March 2020 and ends on the date when mandated closures or restrictions ceased to apply to a sector, so 18 July 2021 in England (7 August 2021 in Wales) at the latest.
“Protected Rent Debts” are rent, service charge, insurance rent and interest due for any period when the business was forced by Government regulations to close. It also includes sums needed to top up a rent deposit used for a Protected Period.
When the Bill is passed the restrictions imposed under the Coronavirus Act 2020 and the Corporate Insolvency and Governance Act 2020 will cease to apply. Some provisions of the Bill will apply retrospectively from 10 November 2021.
In the first of a series of updates we set out below the restrictions which apply from now until the Bill is passed:
- Court proceedings issued on or after 10 November 2021 for rent, service charges, insurance rent or to top up a rent deposit used to pay sums due under a commercial lease since 21 March 2020 are likely to be stayed on the application of either party if the claim is for a Protected Rent Debt due in a Protected Period.
- It is not possible to forfeit a commercial lease for non-payment of rent due on or after 25 March 2020
- Commercial Rent Arrears Recovery (CRAR) cannot be used until there are 554 days of arrears (rather than the pre-COVID norm of 7 days)
- A company cannot be wound up for non-payment of rent which is unpaid by reason of a financial effect of coronavirus. In practice most companies can demonstrate that coronavirus has had an effect on their business.
The Bill introduces restrictions on court proceedings and bankruptcy for the first time. Although not yet in force these will apply retrospectively from 10 November 2021. Under the provisions:
- A bankruptcy order made on or after 10 November 2021 in respect of a protected rent debt due for a protected period will be void.
- No bankruptcy petition can be presented for a protected rent debt due for a protected period.
- A landlord’s debt claim for rent issued on or after 10 November 2021 for a protected rent debt must be stayed if either party asks for a stay.
- A judgment obtained on or after 10 November 2021 for a protected rent debt cannot be enforced for at least 6 months to allow for a binding arbitration to take place.
While landlords will bemoan new restrictions on court proceedings, they will also welcome the clear confirmation that proceedings for any rent due after 18 July 2021 (in England or 7 August 2021 in Wales) may proceed unrestricted and, once the Bill is passed there will be no restrictions on forfeiture, CRAR, winding up or bankruptcy for sums due after that date. There are also no restrictions on rent claims against businesses which were not forced to close.
At the same time as publishing the Bill, a new Code of practice for commercial property relationships following the COVID-19 pandemic was published. The Code is intended to support the binding arbitration scheme. Our next update will look at the Code and the details of the scheme. The scheme is not yet in force, but landlords and tenants are encouraged to co-operate to resolve commercial rent debts. The new Bill will not affect commercial rent debt agreements reached outside of the binding arbitration process.