New Code of Practice and draft Bill to resolve Covid rent arrears 

by Shoosmiths LLP

Published: November, 2021

Hot off the press, the Department for Business, Energy & Industrial Strategy are today introducing a new Code of Practice, and a draft Commercial Rent (Coronavirus) Bill.


BEIS has this morning published a press release, setting out headlines for:


  1. A new Code of Practice, to replace the ‘Code of Practice for commercial property relationships’ originally published on 19 June 2020 and updated in April 2021; and


  2. A draft Commercial Rent (Coronavirus) Bill, to introduce the hotly anticipated mandatory binding arbitration procedures where agreement on payment of rent arrears cannot be reached.


Kirsty Black, a partner in our Property Litigation team who has acted for many clients who have been severely affected by the pandemic, comments that “as ever, the devil will be in the detail, and neither draft is yet available for dissection, but the expansion of the Bill to include restrictions on CCJs is particularly interesting and demonstrates the Government’s continued goal to seek to protect businesses whilst the final negotiations are thrashed out but we will wait and see whether this will be the reality once the draft legislation is available”.  Nathan Rees, a partner in our Real Estate team, commented “Clients will be particularly interested in what the frame of reference for the arbitration proceedings will be, including previous offers and negotiations between the parties.  Where one party has sought to negotiate constructively, will this be taken into account in the arbitration process?”


As a result of the proposals, the Government says commercial tenants will be protected from debt claims, including County Court Judgments, High Court Judgments and bankruptcy petitions issued against them in relation to rent arrears accrued during the pandemic.


There is no more detail in the press release, however, so it isn’t yet clear whether this means that:


  • landlords will no longer be able to issue debt claims for coronavirus arrears;
  • any existing claims will be stayed;
  • judgments already obtained cannot be enforced
  • a mixture of the above

Parties continue to be encouraged to attempt to reach a negotiated agreement rather than participate in litigation. Where a judgment is issued, this will be able to be considered within the legal arbitration process that is proposed.


It appears that the arbitration scheme will only apply to businesses which were mandated to close (in full or in part) from March 2020 until the date that restrictions ended for their sector. Debts accrued at other times will not be in scope.


Examples given in the publication are pubs, gyms and restaurants – no mention of offices, for example. We anticipate more information in the draft Bill on which sectors will be protected. The window for either party to apply for arbitration will be six months from the date legislation comes into force, with a maximum time frame to repay of 24 months.


The new legal arbitration process is intended to come into force from 25 March 2022. In the meantime, parties are reminded to work together with tenants paying what they can and landlords waiving some or all rent arrears where they are able to do so.


We will publish further details of the new Code and draft Bill when they are available. Watch this space for more information as it is released.


 



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