The government has introduced a Bill into parliament proposing a new binding arbitration process to help landlords and business tenants find proportionate resolution of Covid-19 related rent debt.

This means that County Court and High Court judgements on rent debt claims issued from 10 November 2021 will be considered by the arbitration system.

In addition, bankruptcy proceedings commenced from 10 November 2021 and resulting orders will be made void.

These provisions are included in the Commercial Rent (Coronavirus) Bill.

The Bill will introduce a ringfence for rent debts built up as a result of mandated business closures during the pandemic while establishing a new binding arbitration process aimed at finding a proportionate solution which protects jobs, prevents further damage to the economy and enables a return to normal commercial relations.

The code can be used by any business to help them negotiate and resolve rent disputes even if they fall outside of scope for arbitration.

Many landlords and tenants are working well together to reach agreements in respect of rent debts resulting from the pandemic; however, some landlords have pursued remedies such as County Court or High Court judgements.

The government intends protected rent debts to be resolved by mutual agreement, or by the Bill’s arbitration system, which considers both parties’ circumstances in the exceptional context of the pandemic.

The Bill, if passed, will allow a stay of any debt claims that include ringfenced debt and are issued between 10 November 2021 and the Bill coming into force.

It would enable the ringfenced debt under these claims, and any County Court or High Court judgements made in respect of such claims to be subject to arbitration.

Any registration of such judgments for ringfenced debt may be cancelled following an arbitration award. The Bill, if passed, will prevent issue of debt claims including ringfenced debt until the end of the arbitration application period or the arbitration process.

It will also prevent a landlord from petitioning for bankruptcy of a business tenant such as a sole trader, based on non-payment of a statutory demand relating to any ringfenced debt served on or after 10 November 2021 and before the Bill comes into force.

 It will also prevent a petition based on a judgment debt if the claim was issued in this period. If a petition is presented or an order is made relying on such a petition in this period, the Bill provides for these to have no effect.

In line with the government’s intention that protected rent be resolved by agreement or through consideration of both parties’ circumstances, the government discourages landlords from drawing down on tenancy deposits – or where already drawn, requiring landlords to top up - to cover ringfenced rental arrears.

If a landlord has already drawn down on the deposit to account for ring-fenced debt, the Bill would suspend the requirement for the tenant to top-up the deposit and the sum drawn down may be considered within arbitration.

Tenants are encouraged to specify which period of rent is being paid for. If an unspecified amount is, or has been, paid by the tenant following the end of the ringfenced period, the Bill provides for it to cover rent outside the ring-fenced period before it is used for the ringfenced period.

To provide the time to introduce and pass the legislation, the moratorium on forfeiture and restrictions on the use of Commercial Rent Arrears Recovery (CRAR) regime remain in place until 25 March 2022, unless legislation is passed ahead of this. The moratoriums on forfeiture in Wales and Northern Ireland respectively are in place until 25 March 2022. There are restrictions on presenting of winding-up petitions until 31 March 2022.

Mark Addley, real estate restructuring leader and PwC partner, said: ‘The announcement from the government brings the possibility of arbitration closer for tenants and landlords. However, it is clear that the best solution for both parties remains a consensually negotiated settlement.  If this cannot be achieved then the costs and time consumed in an arbitration process could be excessive. 

‘While businesses are also dealing with a raft of ongoing staff, supply chain and inventory management issues, there are only 20 weeks left including the festive period before 25 March 2022. The clock is well and truly ticking. Landlords and tenants, especially those in the retail, casual dining and wider leisure sectors should be working together now - or building up their evidence for an arbitration process.’