Those operating in the commercial letting sector took many knocks when the COVID-19 pandemic took hold of the UK. Where both retail and hospitality are concerned specifically, the mandated closures and restrictive measures imposed had an enormous impact, with the government itself reckoning that there was somewhere in the region of £9 billion in rental arrears still outstanding at the end of March 2022.s
In an attempt to try and both protect tenants from the very realistic threat of total collapse whilst also ensuring the financial viability of many commercial landlords, the Government introduced a range of legislation. But when 24 March came around this year, the Commercial Rent (Coronavirus) Act 2022 came into force, and many of those temporary restrictive measures were revoked, changing the commercial landscape once again.
The Act bought with it the launch of an arbitration scheme designed to assist those involved in commercial property more efficiently manage any rental debts accrued during lockdown. But how does this arbitration scheme work, and what will its establishment mean for those tenants who continue to struggle with the debt caused by COVID-19 complications? Here, Alex Pelopidas of Newmanor Law discusses.
What were the restrictions introduced in 2020?
The routes for managing the collection of outstanding rental arrears were restricted temporarily for commercial landlords when the UK headed into its first lockdown in March 2020.
The right to forfeit a commercial lease on the grounds of non-payment of rent was placed under a suspension for example, as was the use of Commercial Rent Arrears Recovery (CRAR).
The use of statutory demands whilst pursuing up unpaid debt bought about by COVID-19 was also halted, removing the landlord’s ability to chase tenants failing to pay with a petition to have their business interests wound up.
A Code of Practice first published by the Government in June 2020 proposed several practical measures that landlords could try as an alternative:
- A full or partial rent-free period;
- Reduce ongoing payments to a current market rate;
- A deferral of the whole or part of the rent for one or more payment periods;
- The payment of the rents over shorter payment periods for a set time (e.g. monthly rather than quarterly);
- Landlords drawing from rent deposits on the understanding that they will not then be able to request that these deposits be “topped-up” by the tenant before absolutely reasonable to do so.
Although the notion of achieving a compromise on the matter may have seemed tempting to both parties initially, many landlords will have simply opted to wait for the period covered by the original Coronavirus Act to end instead so that they could take action to fully recover any monies they deemed to be commercially imperative.
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What will the Covid rental arrears arbitration scheme mean for commercial property tenants?
