What is the Commercial Rent (Coronavirus) Act 2022?

WHAT IS THE COMMERCIAL RENT (CORONAVIRUS) ACT 2022?

As a result of the Covid-19 pandemic, various lockdown closures caused a significant impact on commercial landlords, tenants and their businesses. The Commercial Rent (Coronavirus) Act 2022 is now in effect and provides support for disputes between landlords and tenants.

What is the Commercial Rent (Coronavirus) Act 2022?

The main objective of the Act is to support landlords and tenants in resolving their disputes relating to commercial rent arrears that accrued while businesses were forced to close during the Covid-19 pandemic. The Act ring fences outstanding unpaid rent that has built up whilst businesses were closed during the pandemic (known as Protected Rent Debts).

There was previously a total ban on forfeiture of commercial premises for rent arrears, and substantial restrictions on the bailiff’s ability to seize tenants’ goods. This ban has now ended in England and Wales.

Landlords

Landlords must make allowances for Protected Rent Debts from the periods of closure and share the financial impact with their tenants. An agreement can be negotiated between the landlord and tenant and, if unsuccessful, the Act provides for a legally binding arbitration process. The Act prevents landlords from issuing court proceedings whilst arbitration is available or ongoing and will also prevent a landlord from petitioning for the bankruptcy of a business tenant.

For 6-months after the Act came into force (known as a moratorium period), landlords will be unable to:

• Enforce a right of re-entry or forfeiture for non-payment of a Protected Rent Debt.
• Use commercial rent arrears recovery in relation to a Protected Rent Debt.
• Start a debt claim to enforce a Protected Rent Debt.
• Issue bankruptcy proceedings for Protected Rent Debt where the statutory demand relied on was served on or after 10 November 2021.
• Present winding-up petition for Protected Rent Debt.

The moratorium period will expire on 24 September 2022 and landlords will then be free take action against the tenant to recover any rent arrears.

Tenants

Generally, commercial tenants suffered the brunt of the pandemic due to their businesses being forced to close. But it is important for tenants to understand the position of the landlord as they also may have found themselves to be in a detrimental position. Tenants should note that, when the moratorium period expires on 24 September 2022, landlords will be able to take action to recover any rent arrears using all usual remedies. If a tenant is unable to pay up the rent arrears then they should think about approaching the landlord to negotiate alternative settlement terms.

In addition to the Act, tenants will need to consider the Commercial rent code of practice (the Code).

The Code

The Code aligns with the Act, outlining what is statutory for those within its scope and how the arbitration process provided for in the Act will work.

The Code can still be used by any business to help them resolve rent disputes even if they fall outside of scope of the new legislation, providing further guidance on how parties should negotiate. The Code will generally be expected to be followed during the dispute resolution process. The Code includes some key points:

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

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