Landlords expected to waive rent debt for commercial tenants in trouble

Earlier this week the Business Secretary Kwasi Kwarteng announced:

– New laws are to be introduced to provide a legally-binding process to resolve the remaining commercial rent debts

– a new Code of Practice is being published to guide landlords and tenants in how to negotiate a way through this, and

– changes are being introduced, designed to protect tenants from rent debt claims against them and help the market return to normality as quickly as possible.

Short-term breathing space

The Government has taken steps to protect commercial (business) tenants from eviction until 25 March 2022. The aim is to provide tenants in arrears with rent payments a short-term breathing space which will help protect jobs and facilitate businesses survival.

The object is to provide time for landlords and tenants to talk, to negotiate how to share the cost of commercial rent debts caused by the pandemic. From the time of the publication, Kwarteng says, these negotiations will be underpinned by the new Code of Practice, providing landlords and tenants with a clear process for settling outstanding debts before the new legally binding arbitration process comes into force.

Expectation of leniency

This Code implies that there is an expectation of leniency on the part of landlords, that landlords should, in the first instance, waive some or all of the rent arrears where they are able to do so.

From 25 March next year, new laws now being introduced in the Commercial Rent (Coronavirus) Bill will (subject to successful passage through Parliament) establish a legally-binding arbitration process for those parties who have not already reached a voluntary agreement.

Applies only to lockdown closure businesses

The Bill will apply only to those commercial rent debts that relate the mandated closure of certain businesses, including pubs, gyms and restaurants etc., during the pandemic. Rent arrears accruing outside of these periods will be out of the scope of the new legislation and subject to the normal courts jurisdiction.

The new laws will affect England and Wales. Northern Ireland will also have powers under the legislation to introduce similar rules.

The result of the arbitration process will be a legally-binding agreement that the landlord and tenant must adhere to, resolving rent arrears disputes and helping the market return to normal as quickly as possible.

Immediate effect

From 10 November 2021, the government protects commercial tenants from debt claims, including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions, issued against them relating to rent arrears accrued during the pandemic.

These new measures will provide further protection to businesses which have had to close causing them to accumulate debt during the pandemic. Those affected already have protection from forfeiture for their business tenancies under the Coronavirus Act 2020.

Business Secretary Kwasi Kwarteng says:

“Today’s measures provide commercial landlords and tenants with the clarity and certainty they need to plan ahead and recover from the pandemic.

“We encourage landlords and tenants to keep working together to reach their own agreements ahead of the new laws coming into place, and we expect tenants capable of paying rent to do so.”

UK Hospitality CEO Kate Nicholls OBE said:

“We welcome the publication of the updated Code of Practice. Vitally important is the emphasis on ongoing negotiation to share the burden of the impact of lockdowns and restrictions that prevented hospitality businesses from trading for so much of the last 18 months. It is in the long-term interests of landlords and tenants to come together and find solutions that ensure business survival and that do not undermine the economic recovery.

“We share government’s view that arbitration should be a last resort and this process must take into account the exceptional and existential level of pain that hospitality businesses have faced over the last 18 months. It must not impact this industry’s ability to rapidly recover and create jobs throughout the country.!

Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said:

“The overwhelming majority of retailers with stores just want the breathing space to trade their way out of the debt unavoidably built up during the pandemic and a constructive agreement with their landlord.”

“While we support the principle of compulsory arbitration, the devil will be in the detail on issues around what tenant viability really means in practice and the power of arbitrators. We will engage closely and constructively with government to help ensure their proposals protect otherwise viable businesses, secure the recovery, and protect jobs.”

British Property Federation CEO Melanie Leech said:

“Property owners and their tenants should be wholly focused on working together to continue the economic recovery from the Covid-19 pandemic. The majority have already reached agreement on the treatment of Covid-related rent arrears, with millions of pounds of support being provided by property owners to tenants in distress.

“The publication of an updated Code of Practice is a clear signal and framework for the minority who have not yet done so, to come together, reach agreement and look to the future.”

Andrew Goodacre, Chief Executive of British Independent Retailers Association commented:

“We welcome this new code of practice. It encourages both landlords and tenants to negotiate and share the burden caused by this pandemic. Independent retailers have worked so hard to reach this point after the hardest 18 months we can all remember, and it would be a tragedy if the ongoing survival of the business was jeopardized due to rental debt.

“Survey data from the British Property Federation indicates that agreement has been reached on the treatment of rent arrears in the vast majority of cases – more than 80% – since the start of the pandemic.

The publication and this announcement follows an Autumn Budget which included measures to support commercial landlords and tenants. This includes reducing the burden of business rates in England by freezing the business rates multiplier for a further year – a tax cut worth £4.6 billion over 5 years – and introducing a 50% business rates discount for the retail, hospitality, and leisure sectors in England, the Government says.

New laws and code to resolve remaining COVID-19 commercial rent debts

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