It is no surprise that the Covid-19 pandemic and the restrictions introduced by the Government, through the Coronavirus Act 2020, have had a massive impact on businesses across the country. With restrictions now being removed, commercial landlords and tenants are being faced with a new piece of legislation called the Commercial Rent (Coronavirus) Act 2022 ("CRCA 2022") which opens the door to commercial landlords recovering outstanding rent and possession of commercial property.
The Commercial Rent (Coronavirus) Act 2022 came into force on 24 March 2022
The CRCA 2022 was introduced by the Government as part of the steps taken to lift the restrictions which came into force under the Coronavirus Act 2020 (“CA 2020”) which prevented commercial landlords from recovering commercial rent arrears and obtaining possession of commercial premises. The restrictions, under the CA 2020, came to an end in England on 25 March 2022.
The changes brought in under the CRCA 2022 will be welcome news for many commercial landlords, but many commercial tenants will be very concerned about their businesses and what these changes mean.
It is important that both commercial landlords and tenants understand the changes brought in under the CRCA 2022. All is not as it was prior to the Covid-19 pandemic and, where necessary, commercial landlords and tenants should seek independent legal advice as to their legal position.
The CRCA 2022 applies to business (commercial) tenancies which are defined under Part 2 of the Landlord and Tenant Act 1954 and includes the following:
• Business/Commercial Leases (including contracted-out leases under the Landlord and Tenant Act 1954)
• Business/Commercial Underleases
• Business/Commercial Tenancies by estoppel
• Business/Commercial Periodic Tenancies, whether express or implied
The CRCA 2022 ringfences certain rent arrears which are referred to in the CRCA 2022 as 'Protected Rent Debts' (“PRD”). PRD under the CRCA 2022 includes any unpaid rent (including service charge, insurance rent, VAT and interest) incurred where a commercial business has been adversely affected by coronavirus during the 'Protected Period' (“PP”).
Under CRCA 2022, the PP is defined as the period where the whole or part of the business carried on by the tenant at or from the premises was subject to a closure requirement during the period beginning on 21 March 2020 and ending on the earlier of: The last day the business or premises were required to close or were subject to regulation as to how the business was run or the way the premises were used; and in England, 18 July 2021 and in Wales, 7 August 2021.
For example, in England, the PP will have begun on 21 March 2020 and ended on:
The CRCA introduces a guide to the relevant dates at Appendix A referred to as the 'New Code'.
The CRCA 2022 introduces a new binding arbitration process to resolve disputes in relation to PRD, where agreement cannot be reached between the parties and imposes a moratorium which prevents landlords from taking enforcement action against commercial tenants whose businesses were forced to close during the Covid-19 pandemic.
The moratorium introduced under the CRCA 2020 prevents enforcement action being taken in relation to PRD for 6 months from 24 March 2022 or, where the arbitration process has been instituted within that time, until after the arbitration process has concluded.
During this new moratorium, landlords will not be able to issue debt claims, initiate the Commercial Rent Arrears Recovery (CRAR) process, forfeit the lease, draw down on any rent deposit, enforce any money judgments already obtained in respect of PRD, appropriate rent payments in any way which prioritises PRD over other rent debts, issue winding-up or bankruptcy petitions, nor institute any other tenant-insolvency procedures.
Under CRCA 2022, either party may serve notification on the other of their intention to refer the matter to arbitration. The notification should include a proposal for settlement of the arrears with supporting evidence. The other party will then have 14 days to respond, either by accepting the proposal or by making a counter-proposal with supporting evidence. If settlement still cannot be achieved, the parties will then have the option to request a public hearing for the arbitration.
Arbitration under CRCA 2022 seeks to resolve disputes between the parties based on the ability of the tenant to pay PRD. The arbitrator’s decision should have regard to the principles that any award should be aimed at preserving or restoring the viability of the tenant’s business, so far as that is consistent with preserving the landlord’s solvency. The tenant should be required to meet their obligations to the landlord, so far as this is consistent with the preservation of the viability of the tenant’s business.
The arbitrator should assess the assets and liabilities of the tenant, the tenant’s rent payment history under the tenancy, the impact of the pandemic on the tenant’s business, and any other information relating to the financial position of the tenant that the arbitrator considers appropriate.
The arbitrator has a wide range of powers and may award a full or partial write-off, deferral of payment of the protected rent debt for up to 24 months, or no concession and full payment to the landlord.
Whichever party refers the matter to arbitration must pay the arbitrator’s fee upfront, but the fee is then split 50/50 between the parties (unless one party behaves unreasonably, in which case the arbitrator has a discretion in relation to pay of the arbitration costs), and each party bears its own costs of the arbitration.
Commercial rent arrears other than PRD are not protected under CRCA 2022. This means that commercial landlords can still use all of the usual remedies which were in force prior to the CA 2020, in relation to commercial rent arrears which are not PRD under CRCA 2022.
To be on the safe side, we would always advise that commercial landlord or tenants seek independent legal advice before taking any steps towards obtaining possession of commercial premises, seeking recovery of unpaid rent or upon receiving a demand for unpaid rent, vacating or surrendering leases for commercial premises.
In our Commercial and Dispute Resolution Department we have a strong team who are experienced in advising clients in all aspects of commercial and residential property matters including possession actions, rent arrears claims, commercial lease renewals, neighbour, easement and covenant disputes.
If you would like any advice on the subject covered in this article or any commercial or residential property matter please do not hesitate to contact Paul Reader, Darren Forrester, or Simeon Blewett by email or telephone.