Posted Tuesday 26th April 2022
The Commercial Rent (Coronavirus) Bill has finally received Royal Assent and is now statute. It is called the Commercial Rent (Coronavirus) Act 2022 and came into force on 25 March 2022. It includes the arbitration scheme that deals with commercial rent arrears that remain unpaid and in dispute so long as they qualify as protected rent debts. “Protected rent” is any unpaid rent, service charge or insurance payment falling due within the period of 21 March 2020 to 18 July 2021 due to forced business closure. For a 6-month period, unless extended, a party to a business tenancy can refer to arbitration any protected rent debt and the arbitrator has power to grant relief from that debt, which includes writing off part or the whole of the debt, or deferring payment for up to a maximum of 24 months.
The government has published guidance which aims to assist arbitrators who will be administering the scheme. This guidance aims to explains how the scheme will operate.
The Act confers upon the arbitrators unprecedented powers to effectively override the parties’ contractual lease obligations and arguably grants arbitrators the power to override Court rulings made in proceedings that were commenced after 10 November 2021. Instead, under the new arbitration scheme, the arbitrator will rely on the parties’ formal proposals and supporting evidence of their financial situation to make their award.
The guidance separates the scheme into 3 stages:
There are prerequisites that parties must comply with, such as informing the other party of their intention to make a referral to the arbitration scheme, waiting for the prescribed period to lapse, and then make a referral to an arbitration body from an approved list.
The scheme is not available to business tenants who have compromised their protected rent debt via a CVA, IVA, or other scheme of compromise or arrangement. However, the guidance does allow a business tenant to make a referral to the new arbitration scheme for protected rent debts if a CVA, IVA or other scheme of arrangement is pending.
The parties can agree on the number of arbitrators to form the tribunal with no limit on number. This will be an economic decision and, in the absence of express agreement between the parties, a single arbitrator will be appointed.
The arbitrator must determine whether a dispute is eligible for the new arbitration scheme bearing in mind the following:
It is likely that the arbitrator will not have the requisite knowledge or experience of the tenant’s business or sector, and yet they will have to use the information provided by the tenant – notwithstanding that they can request further information they consider would be helpful – to make their decision on viability.
The arbitrator is then required to consider to what extent the tenant can pay a protected rent debt and balance that against the solvency of the landlord. The landlord does not have to provide evidence of its solvency unless relief from payment of the protected rent debt would threaten the landlord’s solvency. The arbitrator will ultimately have the difficult role of deciding which of either the tenant’s or the landlord’s proposals is most consistent with preserving the viability of the tenant’s business whilst also preserving the landlord’s solvency.
Awards from the new arbitration scheme will be made available to the public but confidential information will be excluded unless the parties consent to its inclusion. “Confidential information” includes information relating to either party or other persons which, if disclosed, would or may harm the legitimate business interests of that party or those persons. This could make it difficult for the arbitrator who must justify why a tenant’s business is not viable and set out its reasoning for doing so.
The guidance provides clear insight into how the new arbitration scheme is intended to function, and how the landlord and tenant can begin to make early preparations.
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.