Commercial Rent (coronavirus) Bill: Part 2

The Bill should become law on or before 25 March 2022. We have already considered protected vs unprotected debts and recovery of debts in Part 1. Parties are expected to negotiate a settlement in relation to protected debt. The next question is what happens if a landlord or tenant wants to refer a protected debt to the new arbitration scheme.

What is the arbitration scheme relevant to?

The arbitration scheme will apply to all business tenants in occupation of relevant premises in England and Wales and adversely affected by coronavirus, meaning that they were required to close all or part of their premises or business due to COVID-19 restrictions. The scheme only applies to protected debts (see Part 1).

How does a referral start?

Either the landlord or the tenant may refer a protected debt to arbitration during the six-month period starting on the date when the Act comes into force (the Bill includes provision to extend that period beyond six months). The government is setting up a register of arbitrators for the scheme.

The party wishing to refer the protected debt to arbitration must first send a letter of notification to the other with an initial settlement proposal.  The scheme envisages that a response and any counteroffer should then be provided within 14 days, there is then a further 14 days for the parties to take stock.

What range of outcomes are there?

The arbitrator has the power to dismiss a reference or to award relief from payment.  Relief can include writing off all or part of the outstanding sums, giving further time to pay in instalments (over a maximum period of 24 months) or reducing interest payable. 

Once referred how will it progress?

The Government has published a working draft “Statutory Guidance to Arbitrators about the exercise of their functions” under the Bill which sets out the procedures to follow.

Once appointed the arbitrator must first determine whether the dispute is eligible for arbitration. This includes the arbitrator considering the viability and solvency of the tenant's business (as well as the landlord’s solvency) if given relief from payment. If not provided with the application, the arbitrator can request the tenant to provide any information considered necessary to consider tenant viability.

If the arbitration can proceed, the arbitrator must consider the proposals put forward by both parties and make an award as soon as reasonably practicable. Either party can request an oral hearing.

Once a referral to the scheme has been made, the process is legally binding on both parties and the arbitrator's award is final and binding. The grounds for appeal are limited.

How will an award be enforced?

The Bill does not provide for any enforcement of an award and if the tenant fails to comply the landlord will have to enforce it through the courts.

Is there an impact on the insolvency steps a tenant may take?

A tenant cannot propose any CVA, IVA, scheme of arrangement or restructuring plan to compromise the whole or part of any protected debt that has been referred to the scheme for the period from the making of the referral until 12 months after an arbitrator's award or dismissal of the reference. 

What about costs?

The fees payable for the referral to arbitration will be set by the approved arbitration bodies and payable in advance. The Secretary of State will have power to set limits of fees, which would aim to be consistent with the market whilst not preventing access from small businesses.

The general rule is that when making an award the arbitrator must also make an award requiring the other party to reimburse 50% of the arbitration fees. If the arbitrator considers that a party has been obstructive, the arbitrator can require the other party to pay anything between 0% and 100% of the arbitration fees. Otherwise, the parties must meet their own legal and other costs in connection with the arbitration.

If you wish to discuss any issues regarding arbitration in connection with a protected debt contact, please contact one of the authors of this article.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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