Code of Practice
Commercial tenants are currently protected from eviction until 25 March 2022, with the aim that landlords and tenants will instead be encouraged to enter into negotiations aimed at apportioning commercial rent arrears accrued as a result of the Covid-19 pandemic. Such negotiations will be underpinned by guidance in the form of a new Code of Practice, which came into force on 9 November 2021. The Code applies across the UK and proposes that, in the first instance, tenants unable to pay their arrears in full should negotiate with their landlord in the expectation that the landlord waives some or all rent arrears where possible. The new Code replaces the ‘Code of Practice for commercial property relationships’, originally published on 19 June 2020 and updated in April 2021.
Commercial Rent (Coronavirus) Bill
The Commercial Rent (Coronavirus) Bill (the “Bill”), which is due to come into force and take effect from 25 March 2022 in England and Wales (with a delegated power for Northern Ireland), establishes a legally binding arbitration process for commercial landlords and tenants who have been unable to reach an agreement through negotiations following the principles set out in the new Code of Practice detailed above. The arbitration process will apply to businesses (such as pubs, gyms and restaurants) that were mandated to close, in full or part, during the Covid-19 pandemic and will apply to arrears accrued during the period of mandatory closure only. Any application for arbitration can be made by either party unilaterally, must be made within six months of the date the legislation comes into force, and with a maximum time frame to repay of 24 months. The Bill also states that claims for commercial rent debts falling within the scope of the Bill made between 10 November 2021 and the passing of the Bill will also be eligible for the arbitration procedure, and provides for a corresponding moratorium on court proceedings for such claims pending the determination of the arbitration. BEIS will publish a list of approved arbitral bodies in due course.
These measures are a welcome addition and should provide an important framework to assist commercial landlords and tenants in their recovery from the devastating financial effects of the pandemic. It is clear that the overriding objective is to encourage negotiation and sharing of the burden, and therefore the arbitration process should be used as a last resort only once negotiations have failed.
If you have any questions about these changes, please do not hesitate to contact us.