Since the coronavirus pandemic took hold in March 2020, commercial landlords have been subject to unprecedented curbs on their ability to recover rent arrears from struggling tenants.
One of the most notable controls introduced – the blanket ban on the forfeiture of a defaulting tenant’s lease – has now been lifted, but as Sanjay Chandarana, a partner in our litigation team explains: ‘It is not yet business as usual for landlords, as new rules have now come into force which will continue to temporarily prohibit the use of forfeiture in a narrower class of cases and which also now require disputes about pandemic-induced arrears to be resolved via arbitration.’
The rules apply differently in England depending on the nature of a tenant’s business, and on the period for which the affected premises were forced to close or were fully or partially affected by Covid restrictions. For this reason, landlords are urged to take legal advice on their ongoing rent recovery options and on the practical effect of the coronavirus-related rules that remain in place.
End of original restrictions
The original ban on forfeiture for non-payment of rent during the pandemic, introduced on 26 March 2020 by the Coronavirus Act – and which offered protection from eviction to the vast majority of business tenants, irrespective of whether or not they had actually been impacted by Covid and the Government’s response – came to an end on 25 March 2022.
However, one day prior to this, a new set of rules were introduced via the Commercial Rent (Coronavirus) Act 2022, which will continue to shield a more limited range of tenants from the risk of forfeiture for pandemic-related rent arrears for just a little while longer.
Commercial Rent (Coronavirus) Act
Under the 2022 Act, landlords will remain unable to forfeit a lease for the non-payment of rent (or indeed to take most other forms of enforcement action) where the sums owed by a tenant:
- can be classed as a ‘protected rent debt’; and
- where they fell due for payment during the ‘protected period’ defined by the Act.
For the purposes of the new rules, the term ‘rent’ includes any sums payable under the lease and so is wide enough to cover service charge costs, insurance payments, utility bill contributions, VAT, and any late payment interest charges due on such amounts.
The protection afforded by the Act will run until 24 September 2022, or until the conclusion of the new statutory arbitration process (discussed below).
Protected rent debt
Rent which accrued during the pandemic will be classed as a protected rent debt if:
- the rent which is now in arrears fell due for payment anytime between 21 March 2020 and 18 July 2021 (the ‘protected period’);
- it is owed by a tenant who can prove that their tenancy was directly impacted by Covid and the consequent restrictions that the Government imposed (i.e. because, as a result of the pandemic, they were forced to close or restrict their activities); and
- an agreement about the repayment of those arrears has not yet already been reached.
Note that the precise period for which rent arrears will be protected will vary from business to business. This is because the rules expressly provide that the protected period will end on 18 July 2021 or, if earlier, the last day on which the premises covered by the tenancy were in whole or part covered by Covid restrictions or a compulsory closure requirement.
So, for example, if your tenant is a non-essential retailer, then it is likely that any rent arrears due will be protected from 21 March 2020 to 12 April 2021 when non-essential retailers were finally allowed to re-open to the public. Conversely, if your tenant is a hospitality business, then it is likely that protection for them will run all the way through to the end of 18 July 2021.
To be clear though: rent due from 19 July 2021 to 24 March 2022, when the 2022 Act came into force, can now be collected in the usual way (i.e. by any available means that you choose), as can any rent falling due from 25 March 2022 onwards. It is only rent which fell due for payment between 21 March 2020 and 18 July 2021 (at the latest) that continues to be ringfenced.
Arbitration process
Where a tenant owes you a protected rent debt, you should now try to work collaboratively to reach an agreement with them about how this should be repaid. Where this is not possible, the 2022 Act provides for the matter to be determined though a new compulsory arbitration process, in which the role of the arbitrator will be to make an award which aims to preserve or restore the viability of the tenant’s business to the extent that this doable without jeopardising your solvency.
The decision of the arbitrator will be binding, and among the many things they can order are the repayment of the rent debt in full over an agreed term of no more than two years, a full or partial write-off of the sums due or the cancellation of any late payment interest charges.
Note that where you can prove that a tenant’s business is not viable, the application for determination by arbitration is likely to be dismissed and at that point you will be able to proceed to pursue the tenant for the monies owed via any available means that you choose.
Need our help?
To find out more, please contact Sanjay on 020 7845 7400.
We can tell you quickly whether any money owed to you by a tenant is classed as a protected rent debt and, if so, support you to reach a commercially acceptable repayment agreement or to achieve a satisfactory resolution through the new statutory arbitration process. And in respect of rent arrears debts that are no longer subject to any Covid-related rules, we can advise you on the full extent of your recovery options – which will once again range from using CRAR or civil debt recovery proceedings, to effecting forfeiture or the instigation of insolvency proceedings.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.