GUEST BLOG: What we know about commercial rent arbitrations so far

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As the coronavirus pandemic ravaged the financial health of businesses and stifled footfall, the dip in income left businesses unable to make commercial rent payments.

Consumer demand plummeted which pushed many businesses into decline, and therefore at odds with their landlords.

National working from home guidelines were also enforced which prohibited the opening of non-essential workplaces and therefore deemed commercial property temporarily out of use.  

To ease the financial pressure on commercial tenants, a host of Covid-19 support measures were introduced, including the moratorium on the forfeiture of commercial leases and a protocol for commercial rent arbitrations was established.

What is the commercial rent arbitration scheme?

The coronavirus pandemic led to the unveiling of a legally binding commercial rent arbitration scheme which was announced by the then Business Minister, Paul Scully, on 24 March 2022 and sits under the Commercial Rent (Coronavirus) Act 2022.

It sets out a formal procedure under which an independent arbitrator can negotiate and write-off Covid-19 related commercial rent arrears, also known as protected rent debts.

If commercial landlords and tenants are unable to resolve commercial debts using the Code of Practice, the arbitration scheme presents a hopeful beacon. The scheme covers commercial rent debts accrued during the pandemic, from March 2020 to the date the restrictions ended in that sector. This includes businesses that were mandated to close during the pandemic. 

What is a protected rent debt?

According to the Commercial Rent (Coronavirus) Act 2022, ‘a protected rent debt is a debt under a business tenancy consisting of unpaid protected rent if the tenancy was adversely affected by coronavirus’.

Commercial rent debts accrued by tenants during the pandemic are recognised as protected rent debts. As such, a degree of flexibility must be exercised when negotiating repayments, such as more time to pay or write off the debt in part or full. The burden must be shared between the landlord and tenant as a result of the exceptional circumstance.  

Restarting the commercial property sector

The commercial rent arbitration scheme aims to reinvigorate landlords and tenants and help the market return to pre-Covid-19 conditions.

While businesses were temporarily protected from the threat of insolvency during the pandemic, the arbitration scheme gives them a fighting chance at bringing their business back on track, including overdue rent payments.

Commenting on the announcement, former business minister, Paul Scully (pictured), said: “This new law will give commercial tenants and landlords the ability to draw a line under the uncertainty caused by the pandemic so they can plan ahead and return to normality.

“Landlords and tenants should keep working together to reach their own agreements where possible using our Code of Practice to help them, and we’ve made arbitration available as a last resort. 

“Tenants who can repay their rent debts in full, should do so, and when they cannot, landlords should try to share the burden, so we can all move on.”

Author bio

Keith Tully is a partner at Insolvency Practice and consultancy Real Business Rescue.

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