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Government looking to pass a new bill by March 2022 creating a statutory arbitration process providing relief to businesses from COVID rent debts.

A bill has been introduced to create a statutory arbitration process for the resolution of matters relating to relief from payment of rent debts that accrued when businesses were forced to close during the pandemic. The Commercial Rent (Coronavirus) Bill is sponsored by the Department for Business, Energy and Industrial Strategy and the Government intends to pass it by 25 March 2022, when the moratorium against forfeiting commercial leases is due to expire.

At the same time, the Government has reissued the ‘Code of practice for commercial property relationships following the COVID-19 pandemic’, which sets out guidance as to how parties are expected to approach pandemic-related arrears and how the arbitration scheme will operate. The code details principles and behaviours that should be considered and demonstrated by both landlord and tenant including the aim to preserve viable businesses, the need to protect the solvency of the landlord and to act reasonably, transparently and in good faith.

The outcomes of the proposed arbitration process would be binding on the parties and would negate the need for court proceedings. The code of practice refers to a compulsory pre-application stage where parties can make proposals to one another. Thereafter, an application for arbitration can be made and the parties given a choice between having a hearing or the matter being decided by an arbitrator on the documents provided by the parties. The arbitrator will assess the proposals of the parties against the code’s expected principles and will adopt whichever proposal is consistent with them. If they are unable to differentiate, the arbitrator will make the award they consider is appropriate.

The scope of claims that would be affected by the proposed statutory arbitration process is wide. Whilst the scheme is in progress, other remedies for landlords will be temporarily unavailable. Any court claims issued after 10 November 2021 but prior to implementation of the scheme will be stayed on the application of either party. Agreements made voluntarily prior to the implementation of the scheme will not be affected.

For many landlords the proposed scheme may represent a swifter and more proportionate way of dealing with pandemic-related arrears. For others, it will represent a further frustration of their attempts to take enforcement action. In addition to debt claims potentially being stayed, landlords will be unable to present winding up petitions relating to protected rent debt, or bankruptcy petitions where the statutory demand was served on or after 10 November 2021. Further, any bankruptcy order made on or after 10 November 2021 in respected of protected rent debt will be void.

However, unlike the existing moratorium which applies to all commercial property, the proposed scheme will only offer more focused protection to those businesses which were forced to close by lockdowns.

If you need any further guidance or support, please contact our real estate solicitors.