New laws and code to resolve remaining COVID-19 commercial rent debts

The UK Government has announced today, 9 November 2021, that new laws and Code of Practice are being introduced to resolve the remaining commercial rent debts accrued because of the pandemic.

Commercial tenants whose business has been affected by COVID-19 will be protected from debt claims — including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions which have been issued against them in relation to rent arrears specifically caused by the pandemic.

The decision means that businesses forced to close due to the pandemic and continued to accumulate further debt are protected.

While the new rules currently apply to England and Wales, Northern Ireland will have power in the Bill to introduce similar legislation.

The measures are the latest in protections for commercial tenants that have been put in place as a result of the Coronavirus Act 2020, which also sees commercial tenants protected from eviction until 25 March 2022, in an effort to provide time for landlords and tenants to negotiate sharing rent debts. 

Code of Practice

Negotiations are supported by a new Code of Practice which provides landlords and tenants with a process to help settle outstanding debts before the new arbitration process comes into force.

The new Code replaces the ‘Code of Practice for commercial property relationships’ that was originally published in June 2020 before being updated in April 2021.

Binding Arbitration

The Commercial Rent (Coronavirus) Bill, due to be implemented from 25 March 2022, will establish a legally binding arbitration process following the principles of the Code of Practice.

Binding arbitration is only to be undertaken in cases where landlords and tenants cannot otherwise come to a resolution. 

Where commercial tenants are unable to pay rent arrears in accordance with the terms of their lease, or as otherwise agreed by the landlord, they will be bound by the decision of the arbitrator and will have to pay debts accrued during the ringfenced period in accordance with the decision.

Today’s measures provide commercial landlords and tenants with the clarity and certainty; they need to plan ahead and recover from the pandemic.

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.

Kwasi Kwarteng Business Secretary | Department of Business, Energy and Industrial Strategy

The new laws and Code of Practice are sensible actions by the UK Government. They will help both commercial landlords and tenants to work their way out of the problems resulting from pandemic and the Code should be entered in good faith, aiming to resolve rental issues before arbitration is needed.

The powers given to arbitrators will be important factors in the process, and time will tell if the new laws have created a balanced approach to resolving the outstanding rents.

Used constructively, the new Code of Practice should help continue the positive market for commercial property that the industry has started to see in quarter four of 2021.

Mike Hughes Advisory Committee Member | NAEA Commercial