What is the purpose of this Bill?
The Bill is to support the timely resolution of commercial rent debt built up by businesses required to close during the pandemic.
The Government’s aim is to preserve businesses that are viable (disregarding the pandemic-related rent debt), and to protect the jobs those businesses create.
The Bill seeks to do this by establishing a system of binding arbitration for certain protected rent debt of businesses required to close. This is to act as a temporary backstop for parties who have been unable to reach an agreement.
How do I find out whether my business is in scope of arbitration?
A business is in scope if it was mandated to close its premises or business, in whole or in part, by regulations made under the Public Health (Control of Disease) Act 1984, for a period between 21 March 2020 and 18 July 2021 for England, or 7 August 2021 for Wales. A business does not have to have been required to close for the whole of this time, but a business must have been mandated to close for a period within these dates.
The protected period for which rent could be considered in arbitration runs from 21 March 2020 until 18 July or 7 August 2021 (for England and Wales respectively) or, if earlier, the last day on which a business was:
- required to close by Government (in regulations as above), or
- was allowed to open but subject to restrictions in regulations, on how to use the premises or operate, and these restrictions must have applied to particular specified businesses, i.e. not all workplaces.
For those businesses outside of the scope of the Bill’s arbitration system, the new Code of Practice is available for any business, to help them negotiate and resolve rent debts, and move towards normal market conditions.
Does the ringfenced period cover the payment due date, or the period when the actual rent falls due?
Under the Bill, rent is protected if it is attributable to the protected period. For a business for which the protected period ends on 18 July 2021, if rent due in June 2021 is unpaid and this rent relates to 3 months starting with the payment date, the amount attributable to the period from the June payment date to 18 July is protected and the amount attributable to 19 July onwards is not.
How do I demonstrate to my landlord or an arbitrator that my business is viable?
We recognise that viable business models will differ between businesses and sectors. The Bill sets out, in Clause 16, the factors that the arbitrator should consider. These include:
(a) the assets and liabilities of the tenant, including any other tenancies to which the tenant is a party,
(b) the previous rental payments made under the business tenancy from the tenant to the landlord,
(c) the impact of coronavirus on the business of the tenant, and
(d) any other information relating to the financial position of the tenant that the arbitrator considers appropriate.
Annex B to the Code of Practice also contains a non-exhaustive list of evidence that tenants could provide to demonstrate the viability of their business.
I have already come to an agreement with my landlord/tenant. Will arbitration override this?
No. We recognise that some landlords and tenants will have already come to agreements over rent arrears and have followed best practice in doing so. If agreement is reached, we recommend that parties confirm the amount and period that this agreement refers to between themselves, formally and in writing, as the arbitration process will not overturn existing agreements.
Where parties have already come to an agreement in respect of protected rent debt, and a reference is then made to arbitration, the arbitrator is required to dismiss the reference.
How would the arbitration process work?
The process aims to encourage as much negotiation as possible, with both parties required to notify the other before applying for arbitration.
Before either party can apply, they are expected to offer a solution, with supporting evidence, and to negotiate to try and resolve the matter.
If they cannot agree, the party referring the case to arbitration must include in their application, a formal proposal for resolving the dispute. The other party can also do so.
Both proposals can be revised within a fixed period, which may be altered by agreement between all parties or where the arbitrator considers it would be reasonable in all circumstances.
The arbitrator will then make an award, selecting the proposal that best meets the principles as detailed in Clause 15.
A full breakdown of the arbitration process can be found at Annex C to the revised Code of Practice.
What are the principles governing the actions of arbitrators?
The following principles should be considered by the arbitrator:
- the preservation of the viability of the business of the tenant should not be at the expense of the solvency of the landlord
- where it is affordable for a tenant to meet their obligations under the lease in full, they should do so without delay
Therefore, any relief should be no greater than necessary for the tenant business to afford.
How does the Bill affect remedies for unpaid rent?
For businesses in scope of the Bill, once the Bill is in force there will be a 6-month period for applying to arbitration, during which other remedies and measures will be unavailable in respect of protected rent until either the end of the period for applying to arbitration, or – if arbitration is undertaken – the process is complete.
The temporary restrictions under the Bill mean that, during the moratorium period set out above, landlords may not make a debt claim, exercise a right of forfeiture, use the commercial rent arrears recovery power (CRAR) to seize goods, present winding-up or bankruptcy petitions, or unilaterally invoke arbitration other than the system under the Bill, in respect of unpaid protected rent debt in scope of the Bill.
Landlords may not use a tenant’s deposit to recover protected rent whilst the temporary moratorium is in place; if this has already been done, tenants do not have to top up the deposit in that period. If a tenant in scope makes a rent payment without specifying the period it covers, the payment must be treated as relating to unprotected rent before protected rent.
The arbitrator can consider protected rent under a debt claim issued between 10 November 2021 and when the Bill comes into force or a judgment on such a claim.
Any unpaid rent of a business in scope which is attributable to a period outside of the protected period, will be subject to all usual remedies.
How will the Bill address County Court Judgements (CCJs) and High Court Judgements (HCJs)?
Once the Bill is in force, a debt claim may not be issued in respect of protected rent during the temporary moratorium period set out above.
Debt claims issued on or after 10 November and before the Bill is in force, which include protected debt, would be stayed if either party applies for a stay, so that the dispute can be resolved by arbitration (or by other means).
Protected rent debt covered by a judgment given before the Bill comes into force, on a claim issued on or after 10 November, may be considered within the Bill’s arbitration process. The registration of judgements for protected rent debt resulting from claims issued after 10 November and before the Bill comes into force may be cancelled following an arbitration award.
Debt claims issued prior to 10 November will be unaffected by the Bill.
Will the Bill restrict the use of company or individual voluntary arrangements (CVAs and IVAs), statutory restructuring plans and schemes of arrangement?
Yes. Parties that have entered the arbitration system may not include the ringfenced rent debt in any CVA, IVA, restructuring plan or scheme of arrangement once an arbitrator is appointed and until 12 months after the arbitrator makes an award.
What is the territorial extent of this legislation?
The Bill extends to England and Wales and to Northern Ireland and Scotland for limited provisions.
Who is the Code of Practice for? Is this different to the legislation you are introducing?
The Code applies to a broader category than the Bill. It applies to all commercial leases held by businesses which have built up rent arrears, as a result of the impact of the COVID-19 pandemic. This includes business across a range of sectors, whether in hospitality, retail (including supply chains), leisure, manufacturing, industrial and logistics, ports, or agriculture.
The Code is therefore relevant for all commercial rent debts (including service charges and insurance) accrued since March 2020 within England, Wales, Northern Ireland, and Scotland, to assist with the terms of negotiation.