Landlords and tenants are aware of the measures introduced to protect tenants’ businesses during the pandemic. Landlord and tenant expert, James Holton, examines recent developments and highlights the key takeaways for landlords, tenants and their agents.
What is Protected Rent?
The Commercial Rent (Coronavirus) Act 2022 (“the Act”) ringfences rent debts (which may include service charges, interest and VAT) which accrued as a result of businesses being mandated to close during a lockdown for their sector (e.g. pubs, restaurants and gyms). These are known as protected rent debts and the period will be from 21 March 2020 to the date restrictions ended for the tenant’s sector.
Lifting of Restrictions – Options for Landlords
Where rent arrears are not a protected rent debt (i.e. the tenant was not mandated to cease trading), landlords have the following options:
- Forfeit the lease where the premises are in England (subject to a forfeiture clause and no waiver of the right to forfeit).
- Issue a rent arrears claim in court.
- Present a winding-up petition.
- Invoke commercial rent arrears recovery (CRAR).
- Draw down a rent deposit.
Parties with premises in Wales should note that the restriction on the right to forfeit on the ground of rent arrears has been extended to 24 September 2022.
Arbitration – Threat or Opportunity?
The anticipated arbitration scheme is now in effect for those rent debts which accrued during a mandated closure period.
Parties have until 24 September 2022 to apply for arbitration of their rent arrears dispute where they are unable to negotiate a settlement. The Act introduces a new moratorium which prevents landlords from exercising their usual remedies (such as forfeiture or court proceedings for rent arrears) during this period. Arbitrators must dismiss any referral where the tenant’s business is unviable.
Any arbitration award must be published (although sensitive commercial information may be redacted).
We anticipate that many landlords and tenants will be reluctant to engage in the arbitration process. Some landlords may elect to play for time and hope that the tenant does not refer their matter to arbitration then take further steps from 25 September 2022.
However, the perceived threat of the of arbitration may see parties take advantage of other forms of alternative dispute resolution (such as negotiation and mediation) to reach a global settlement of both protected and unprotected arrears. There may also be opportunities for landlords to re-gear leases or to negotiate surrenders where premises are under-rented.
DTM Legal LLP
Our specialist landlord and tenant team are supporting clients and their professional advisors in the successful management of their portfolios including the recovery of rent and service charge arrears, plus the renewal and termination of leases. For more information visit our Forfeiture services page.
James Holton is named as a “rising star” in the Legal 500 and is a landlord and tenant specialist. To contact James please email him at james.holton@dtmlegal.com or telephone 01244 354800.
