Commercial Rent (coronavirus) Bill: Part 1

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4 min read

The Bill should become law on or before 25 March 2022. Once passed it will enable “relief from payment of protected rent debts due from the tenant to the landlord under a business tenancy to be resolved by arbitration (if not resolved by agreement)”. Whilst arbitration gets the headlines the starting point for any landlord or tenant is to identify protected debts and unprotected debts. Then you can look at what steps can be taken in relation to each of them.

Unprotected debt vs protected debt

Unprotected debt

Unprotected debt is any debt that is not protected debt. Obvious but important.

The easy first step is to establish when the debt was incurred.

Before 21 March 2020

Between these dates

After 18 July 2021 (England) or 7 August 2021 (Wales)

Unprotected

Needs further analysis

Unprotected

Identifying protected debt

Protected debt is any amount payable for use of business premises whether described as rent, service charge, insurance, topping up a rent deposit, interest and VAT.  This debt is protected if:

  • the tenancy was "adversely affected by coronavirus"
  • it accrued during a period ring-fenced by the Bill (the “protected period").

A tenant is treated as being adversely affected by coronavirus if they were required to close all or part of their premises or business due to COVID-19 restrictions.  The protected period begins on 21 March 2020 and ends on or before 18 July 2021 in England or 7 August 2021 in Wales. However, the end date may vary if any closure requirements or specific coronavirus restrictions were no longer in place for particular businesses. Therefore, the protected period will vary from business to business.

Identifying the end date for the protected period for the specific debt is important. If premises or parts of premises were subject to a closure due to coronavirus restrictions, they will be regarded as adversely affected by coronavirus.  For these purposes, it is irrelevant that specific activities could continue, such as takeaway food from a restaurant.

The new Code of Practice for Commercial Property Relationships includes graphs of the mandated closures at Annex A and is an important reference tool.

Some other factors to be aware of

Not all tenancies are protected

The Bill is applicable to any business tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies. This means it does not apply to licences, tenancies for six months or less, agricultural holdings and some other leases. If there is doubt, then this needs to be checked.

Existing agreements on debts

Existing agreements concerning payment of protected debt are unaffected by the Bill and cannot be referred to the arbitration scheme.

Appropriation rules – what to do with unallocated payments

When a payment is received that is not specified for a particular debt a landlord can normally decide to what debt it should be applied. The Bill will change the appropriation rules for protected debt and are retrospective to the end of the protected period. Landlords must apply such payments to unprotected debt first and review such allocations since July 2021.

Debt recovery options

Parties are expected to negotiate a settlement in relation to protected debt. Either the landlord or the tenant may refer a protected debt to arbitration during the six-month period starting on the date when the Bill comes into force. See Commercial Rent (Coronavirus) Bill Part 2 for further details about this arbitration.

The Bill introduces a new temporary moratorium from the passing of the Bill prohibiting certain enforcement methods for protected debt. The moratorium will apply until the conclusion of an arbitration or, if no reference to arbitration is made, six months after the Bill is passed.

From 26 March 2022 existing restrictions on recovery of unprotected debts are expected to be removed.

Option

Protected debt

Unprotected debt

Issuing court proceedings

Prohibited

Permitted now

Commercial Rent Arrears Recovery (CRAR)

Prohibited

Permitted from 26 March 2022

Forfeiture for non-payment

Prohibited

Permitted from 26 March 2022

Drawing down on a rent deposit

Prohibited (where a drawdown has occurred before the Bill is passed, the tenant is not required to top up the rent deposit)

Permitted now

Presentation of a winding up petition

Prohibited

Permitted from 26 March 2022

Presentation of a bankruptcy petition

Prohibited where a statutory demand was served on or after 10 November 2021

Permitted from 26 March 2022

Enforcement action for an outstanding judgment

Prohibited for a protected debt entered on or after 10 November 2021 (although they may be referred to the arbitration scheme)

Permitted now

If you wish to discuss any issues regarding a protected rent debt contact, please contact the authors of this article.

Read Part 2 here.

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