New Code of Practice to resolve Covid-19 commercial rent debts

The government is introducing new laws and a Code of Practice to resolve commercial rent debts accrued because of the pandemic.

Commercial tenants are protected from eviction until 25 March 2022. It’s hoped this will provide time for landlords and tenants to negotiate how to share the cost of rent debts.

These negotiations will be underpinned by a new Code of Practice, which sets out that, in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord waives some or all rent arrears where they are able to do so.

From 25 March 2022, new laws introduced in the Commercial Rent (Coronavirus) Bill will establish a legally binding arbitration process for commercial landlords and tenants who have not already reached an agreement, following the principles in the Code of Practice.

The Bill will apply to commercial rent debts related to the mandated closure of certain businesses such as pubs, gyms and restaurants during the pandemic. Debts accrued at other times will not be included.

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

The government is also protecting commercial tenants from debt claims, including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions, issued against them in relation to rent arrears accrued during the pandemic.

Business Secretary Kwasi Kwarteng said: “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.”

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

Code of Practice key points:

• the Code of Practice applies across the UK.
• the intention is for the new legal arbitration process to come into force from 25 March 2022, subject to Parliamentary passage of the Commercial Rent (Coronavirus) Bill.
• the laws will apply to businesses which were mandated to close, in full or in part, from March 2020 until the date restrictions ended for their sector. Debts accrued at other times will not be covered.
• for those tenancies that fall within scope of the Bill and have failed to reach agreement, either party can apply for arbitration unilaterally, as a backstop after negotiations have failed. Parties are free to continue to negotiate outside of the legal arbitration process once it comes into force. The Code signposts tenants and landlords to forms of alternative dispute resolution, such as mediation, if they wish to pursue this.
• the government encourages landlords and tenants to negotiate their own agreement where possible instead of resorting to the arbitration process.
• the window to apply for arbitration will be 6 months from the date legislation comes into force, with a maximum time frame to repay of 24 months.
• the new Code of Practice replaces the ‘Code of Practice for commercial property relationships’ originally published on 19 June 2020 and updated in April 2021.
• the legal arbitration process will be delivered by private arbitrators in accordance with guidelines set out in the legislation. Landlords and tenants will be able to apply directly to any approved arbitration body for their dispute resolution if negotiations have failed.
• landlords are encouraged to attempt to reach a negotiated agreement with tenants rather than pursue a CCJ. Where a CCJ is issued, this can be considered within the legal arbitration process when this comes into effect.

Please contact us if you would like more information about the issues raised in this article or any aspect of commercial property law.