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Will a Rise in Commercial Tenant Disputes Create a Buying Opportunity?

Peter Hemple looks at the current state of commercial property arrears

The Commercial Rent (Coronavirus) Act 2022 was a Government Bill introduced in the House of Commons on 9 November 2021. Royal Assent was granted on 24 March 2022, with most of the Bill coming into force on that day.

The Bill introduces a binding arbitration scheme available to landlords and tenants that are unable to reach an agreement on commercial rent debts that accumulated during the periods of coronavirus restrictions in England and Wales. The legislation will only apply to businesses that were required to close in full or part from March 2020 until the restrictions ended for their sector meaning that any arrears accrued outside this period will not be included in the ringfenced arbitration. The period between 21 March 2020 and 18 July 2021, is known as the ‘protected period’.

Either party has six months to refer a dispute to arbitration, to be administered by Government-approved arbitration bodies. The Treasury initially estimated that pubs and bars, restaurants, clothes retailers, and hotels would owe the most rent to commercial property landlords by then. Most importantly to landlords, the Bill brings an end to the wide-reaching restrictions on commercial property evictions that were introduced to protect businesses during the pandemic. However, the effect of the Bill is to ring-fence ‘protected debts’ and prevent evictions in respect of those debts only.

Are evictions another can that has been kicked down the road?
If you are a commercial landlord that has seen your tenant accumulate huge rent arrears during the pandemic restrictions, this new Bill may offer little comfort as it effectively extends the existing eviction moratorium, which will run from the date that the legislation comes into force until: a) six months from the date the legislation comes into force with a maximum time frame of 24 months for repayment (this is the window in which parties must apply for Arbitration), or b) where a party has applied for Arbitration, the date the Arbitration is concluded or abandoned.

During this new moratorium, landlords will not be able to issue debt claims, draw down on any rent deposit, initiate the Commercial Rent Arrears Recovery process, forfeit the lease, enforce any money judgments already obtained in respect of protected rent debts, appropriate rent payments in any way which prioritises protected rent debts over other rent debts, issue winding-up or bankruptcy petitions, nor institute any other tenant-insolvency procedures.

Either party can apply for arbitration, and this will not prohibit any ongoing negotiations between the parties to try to resolve disputes independently.

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