In keeping with the end of domestic restrictions in the country in accordance with the ‘Living with COVID’ plan, the special measures introduced by the Coronavirus Act 2020 to protect commercial tenants impacted by the restrictions imposed during COVID-19 from forfeiture expired as of 25 March 2022.
Section 82 of the Coronavirus Act 2020 imposed restrictions on a landlord’s ability to forfeit a commercial lease for non-payment of rent as from 26 March 2020 until expiry of the relevant period which had been extended to 25 March 2022.
The restrictions had the effect of postponing the landlord’s ability to forfeit a commercial lease for non-payment of rent until expiry of the relevant period. Many tenants, such as those in the retail industry, were able to rely on the protection provided by the restrictions to decide not to pay rent, at least, while they were unable to trade. The relevant period has not been extended past 25 March 2022 which means that landlords can now consider their options to enforce a right to forfeit if appropriate.
However, commercial landlords should be aware that the government has recently introduced new legislation in the form of the Commercial Rent (Coronavirus) Act 2022 (CRCA 2022) and issued a new Code of practice to support landlords and tenants in resolving commercial rent disputes arising from restrictions imposed during the COVID-19 pandemic.
The CRCA 2022 came into force on 24 March 2022 and coincides with the end of the restrictions on forfeiture under the Coronavirus Act 2020. It introduces a statutory arbitration process to resolve disputes for rent arrears which have accrued during the periods of forced closures.
The following elements of CRCA 2022 should be taken into account:
- It applies to business tenancies, being property that is occupied for the purposes of a trade or profession as defined within the Landlord and Tenant Act 1954, and not all forms of tenancies.
- It ring-fences “protected rent debt”, being rent (including service charge and interest) which is unpaid in respect of a business tenancy which was adversely affected by coronavirus by being subject to forced closures for any period between 2:00pm on 21 March 2020 and 11:55pm on 18 July 2021.
- The unpaid rent has to be attributable to a period of occupation for or within the period commencing 21 March 2020 and ending on the earlier of 18 July 2021 or the last day on which the business or property was subject to forced closure;
- Where applicable, landlords and tenants will have 6 months from 24 March 2022 to refer the matter to the arbitration scheme, known as the Moratorium Period. In effect, a new moratorium is in place to enable the parties to arbitrate during which landlords are prevented from exercising their right to forfeit and/or take other enforcement action. The Moratorium Period can be extended by further regulations.
- During the Moratorium Period, landlords will notably be prevented from issuing a monetary claim, using the commercial rent arrears recovery (CRAR) procedure and enforcing a right of re-entry or forfeiture in relation to a protected rent debt. This is not an exhaustive list and legal advice should be taken as to what rights can or cannot be exercised during the Moratorium Period.
- Where claims have already been commenced on or after 10 November 2021 but before the CRCA 2022 came into force on 24 March 2022, the court will grant any application by either party for the proceedings to be stayed to attempt to resolve the matter by arbitration or otherwise. If the court has already awarded judgment in a claim, the landlord is prevented from enforcing the judgment during the Moratorium Period, and the matter can still be referred to arbitration.
- The arbitration scheme can be initiated by either party serving notice on the other and the recipient will have a period of 14 days to respond. If a response is not provided, the party initiating the process can refer the matter to arbitration after 28 days of the initial notice.
- The arbitration process will provide the parties with an opportunity to submit their formal proposals for resolving the matter to an arbitrator, with accompanying evidence. The arbitrators award will be enforceable in the same manner as a judgment or order of the court, and can be challenged by way of an appeal in accordance with the Arbitration Act 1996.
The government also issued the new Code of practice for commercial property relationships following the COVID-19 pandemic to supplement the CRCA 2022. The Code of practice provides guidance, best practices and considerations for landlords and tenants to assist with negotiations and applies to all rent arrears in respect of commercial leases held by businesses.
Notwithstanding the lifting of the restrictions for commercial rent arrears under the Coronavirus Act 2020, both landlords and tenants will need to be mindful of any additional obligations and processes to be followed following the implementation of CRCA 2022 and the new Code of practice.
If you are a landlord or tenant wanting to find out more about the recent changes in legislation in relation to rent arrears concerning a commercial lease, please contact Paul Davis by emailing firstname.lastname@example.org or calling 0116 281 6231.