Further protections introduced for rent arrears accrued during forced closures

The Covid-19 pandemic has presented a plethora of challenges for restauranteurs, and many businesses have struggled to pay their rent whilst they have been forced to close in several national or localised lockdowns.

The Coronavirus Act 2020 was introduced as emergency legislation to prevent commercial landlords from re-entering and taking back their premises based on non-payment of rent, which brought significant relief to the restaurant sector. This legislation and the protection offered to commercial tenants has been extended no less than five times, and the end date is now due to be 25th March 2022 by which point commercial tenants will have had almost two years of protection. But what will happen after that date?

The Government recently announced that new laws will be introduced from 25th March 2022 (which are currently making their way through Parliament under the Commercial Rent (Coronavirus) Bill) which will establish a new arbitration process for commercial landlords and tenants. The arbitration process will be legally binding, and will apply to commercial rent debts which have resulted from the forced closure of certain businesses, which includes restaurants and pubs. Any other debts which were accrued at other times won’t be included within the mandatory arbitration scheme. The result of the process will be a legally-binding agreement between the landlord and tenant to resolve the rent arrears dispute. The arbitration process and any preceding negotiations will be underpinned by a new Code of Practice that was introduced in November 2021.

Until now, there was a loop-hole in the protections afforded to tenants in rent arrears in that commercial landlords could still bring a debt claim for a judgment against the tenant even in relation to rent arrears that accrued during the pandemic when businesses were forced to close. From 10th November 2021, tenants are also protected from this possibility, as well as the continued protections against landlords re-entering and taking back their premises.

The introduction of these measures will undoubtedly give restauranteurs and other business owners reassurance where they are still struggling to get on top of rent arrears that accrued during the pandemic. We would advise businesses to continue to engage in open and constructive discussions with landlords in order to try and reach agreement, as this will save costs, time, and will hopefully maintain good commercial relations with your landlord. The arbitration process is there for landlords and tenants to use as a last resort where agreement cannot be reached, but a collaborate approach should be adopted if possible.

Given that Covid-19 numbers are currently on the rise again, it remains to be seen what will happen in the new year.

For further information about the arbitration process or Code of Practice, visit the Government’s website: https://www.gov.uk/government/publications/commercial-rents-code-of-practice-november-2021/code-of-practice-for-commercial-property-relationships-following-the-covid-19-pandemic#link_arbitration