Legal Update: Commercial rent arrears
Simone Ritchie • November 15, 2021
On Tuesday 9th November 2021, the UK government published the eagerly anticipated draft bill and updated Code of Practice to deal with outstanding commercial rent debts accrued as a result of COVID-19.
What is the current position?
- Since March 2020, the government has placed a number of restrictions on commercial landlords seeking to recover rent arrears from their tenants (including insolvency proceedings against tenant companies for unpaid rent and service charge arrears and forfeiture for rent arrears).
- Most of these restrictions are due to expire on 25 March 2022.
What's new?
- From 9 November 2021 the updated Code of Practice underpins negotiations between landlords and tenants in settling outstanding debts and will apply to the new arbitration process introduced by the draft bill when it comes into force (which is supposed to be at the end of March 2022).
- From 10 November 2021 the government states that it is protecting commercial tenants from debt claims (including bankruptcy petitions and judgments in the High Court and County Court) issued as a result of rent arrears accrued during COVID-19. Although this is to be included in the bill (which has not been passed into law yet), the guidance from the Government is that it will apply from 10 November 2021. Clearly this is going to have a significant impact on strategy and whether to embark on debt recovery proceedings between now and the date of the law being published.
- From 25 March 2022 new laws will provide a legally binding arbitration scheme to resolve certain outstanding commercial rent debts accrued as a result of mandated closure during the COVID-19 pandemic.
Key takeaways
- The final remedy available to landlords (issuing a debt claim) is intended to be removed. What options are therefore left to Landlords? Practically speaking, hardly any.
- Commercial rent arrears accrued during periods when a business was not forced to close are not captured within the scope of the draft bill. The guidance sets out a timeline for when each sector was affected by the closures so that the ring-fenced arrears can be calculated.
- Bear in mind that this is only a bill; who knows what the enacted Law will look like., If it’s substantively like this, then the balance between the parties is most definitely not equal.
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