New law to resolve COVID-19 commercial rent debts

The Commercial Rent (Coronavirus) Act 2022 received Royal Assent on 24 March 2022 and means a legally binding arbitration process will be available in England and Wales for eligible commercial landlords and tenants who have not already reached an agreement to resolve outstanding commercial rent debts related to the pandemic.

The law applies to commercial rent debts of businesses including pubs, gyms and restaurants which were mandated to close, in full or in part, from March 2020 until the date restrictions ended. Debts accrued at other times will not be in scope.

Code of Practice

The new Code of Practice, published on 7 April 2022, replaces the Code issued on 19 June 2020, updated on 6 April 2021, and subsequently revised on 9 November 2021. 

It sets out that tenants who can pay their rent debt in full should do so, and that in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord shares the burden where they are able to do so, and only as far as necessary, by waiving some or all rent arrears or giving time to pay.

This Code is comprised of three sections:

  1. Part One of this Code applies to all business tenancies and sets out the behaviours expected of landlords and tenants including when they are in negotiation. It is therefore designed for use by landlords and tenants within England, Wales, Scotland, and Northern Ireland.
  2. Part Two of this Code provides guidance on the Commercial Rent (Coronavirus) Act 2022 (“the Act”) including any applicable legal obligations. This section is therefore designed for use by Landlords and Tenants in England and Wales (where the Act applies) only.
  3. Part Three of this Code provides information on remedies and measures and is generally applicable to England and Wales only, with the exception of paragraph 119 which applies only to Scotland and 120 which applies only to Northern Ireland.

Binding Arbitration

For those tenancies that fall within scope of the Act 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. The Code signposts tenants and landlords to forms of alternative dispute resolution, such as mediation, if they wish to pursue this.

The window to apply for arbitration will be six months from the date legislation comes into force. Arbitrators may award a reduction of protected rent debt and/or time to pay, with a maximum period to repay of 24 months.

The legal arbitration process will be delivered by arbitrators appointed by approved arbitration bodies from a list of suitable and available arbitrators.

Arbitration bodies will have to go through an approval process to demonstrate their suitability to administer the scheme. The Department for Business, Energy and Industrial Strategy (BEIS) will publish a list of approved arbitration bodies in due course, and where a dispute is eligible, landlords or tenants will be able to apply directly to any approved arbitration body to appoint an arbitrator.

Statutory guidance sets out how arbitrators should exercise their functions →

The best course of action for commercial landlords and tenants is still to try to negotiate their own agreements to clear outstanding debts using the Code of Practice. This will avoid the uncertain decision, and the cost and time consequences that will result from a referral to arbitration.

It is clear in the legislation that arbitration should be a last resort. The measure of its effectiveness for the cases that do have to go down that route will rely on consistent decisions and awards handed down by the arbitrators across the country.

Timothy Douglas Head of Policy and Campaigns | Propertymark