What does the Commercial Rent (Coronavirus) Act mean for tenants and landlords?

Blogs 23 Mar 2022

Adam Grimwood, a solicitor at FSB Legal Hub, explains what the Commercial Rent (Coronavirus) Act means for businesses with outstanding rent as a result of the pandemic.

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Please note this article is not a substitute for legal advice. FSB members should contact our 24/7 legal helpline for advice.

Under the Coronavirus Act 2020 and supporting legislation, businesses that had to remain closed during the pandemic, and were unable to pay rent on their commercial property as a result, were given protection from eviction via a process known as forfeiture. In addition, the rules as to when a landlord could send bailiffs round to seize tenants’ goods (Commercial Rent Arrears Recovery) were made much more restrictive.

The total ban on forfeiture of commercial premises for rent arrears, and substantial restrictions on bailiffs’ ability to seize tenants’ goods, has now ended in England and Wales.

What is the Commercial Rent (Coronavirus) Act?

Legislation passed through Parliament receiving Royal Assent on 24 March 2022.  The Commercial Rent (Coronavirus) Act 2022 (“the Act”) ringfences outstanding unpaid rent built up whilst businesses were closed during lockdowns (these amounts will be known as Protected Rent Debts). 

Landlords must make allowances for Protected Rent Debts from these specific forced periods of closure and share the financial impact with their tenants.  An agreement should be sought between the parties and, if unsuccessful, there will be a legally binding arbitration process. The arbitration will be delivered by private arbitrators in accordance with guidelines to be set out in the legislation.

What should landlords do?

Landlords should make allowances for protected rent debts from these specific forced periods of closure and share the financial impact with their tenants. An agreement should be sought between the parties and, if unsuccessful, there will be a legally binding arbitration process. The arbitration will be delivered by private arbitrators in accordance with guidelines to be set out in the legislation.

The Act prevents landlords from issuing court proceedings pursuing such protected rent debts whilst arbitration is available or ongoing.  It will also prevent landlords from petitioning for the bankruptcy of a business tenant such as a sole trader, following non-payment of a statutory demand relating to any ringfenced debt served on or after 10 November 2021.

What should tenants do?

Clearly, commercial tenants have generally borne the brunt of the pandemic, after all, it’s their businesses that were ordered to close, or were subject to various onerous restrictions. It’s easy for tenants to assume that landlords are much better placed to absorb these losses than they are, but this is not always the case. Some landlords may themselves be on the brink of insolvency.

Tenants should also look at the Code of Practice (outlined below). In an ideal world the parties should try to be respectful of each other’s position, the tenant has had to struggle through closures and restrictions and now emerges into a difficult economic landscape, often ladened with debt built up during the pandemic, but likewise, landlords are more often than not reliant on rental incomes to pay the own overheads including mortgages, and may already have cut their tenants plenty of slack

The Code anticipates that tenants should not have to borrow themselves to the hilt, but likewise, landlords should not have to bankrupt themselves to accommodate struggling tenants.  Where the tenant’s business is “viable” the parties should try to work together to find a solution.  It’s an obvious fact to state that commercial landlords are reliant on good and successful tenants, but likewise, tenants will always be looking for sympathetic and understanding landlords who can see that the tenant’s ultimate success is also in their best interests.

What is the Code of Practice?

In addition, there is an amended “Code of Practice for Commercial Property Relationships Following the Covid-19 Pandemic” (“the Code”) which will generally be expected to be adhered to during this process.

The Code:

  • states, that where it is affordable, a tenant should aim to meet their obligations under their lease in full.
  • makes clear that the preservation of the tenant business’ viability should not come at the expense of the landlord’s solvency.
  • explicitly states that tenants should never have to take on more debt – or restructure their business – in order to pay their rent.
  • provides guidance on how parties should approach negotiation.

Six Month Moratorium Period

During a 6 month Moratorium Period after the Act came into force, landlords will be unable to:

  • Enforce, by action or otherwise, a right of re-entry or forfeiture for non-payment of a Protected Rent Debt.
  • Use CRAR in relation to a Protected Rent Debt.  If the landlord seeks to use CRAR in relation to an unprotected rent debt, the Protected Rent Debt is to be disregarded when calculating the net unpaid rent.
  • Start a debt claim to enforce a Protected Rent Debt (including claims and counterclaims).
  • Present winding-up petitions for Protected Rent Debt
  • Issue bankruptcy petitions against individuals for Protected Rent Debt where the statutory demand relied on was served (or, if an unsatisfied judgment is relied on, the claim was issued) on or after 10 November 2021).

Where can I find more information?

FSB members can find more detail about the Act and the Code by visiting the property category of the FSB Legal Hub. There are also various other factsheets covering all aspects of commercial landlord and tenant law in the FSB Legal Hub.

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