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Access All Arrears – August 2021

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Access All Arrears – The Government’s plan for dealing with

Covid-19 rental arrears for Commercial Properties

Since the start of the Covid-19 pandemic back in March 2020, many businesses have been unable to meet their rental payments on commercial premises due largely to an inability to trade for significant periods of time. The Government recognises that whilst times have been tough for the tenants, the landlords of those properties have been left without rental payments and with no ability to recover these. In order to protect as many businesses as possible the Government introduced a moratorium which prevented the eviction of tenants on grounds of unpaid rent. This moratorium has been extended several times and still remains in force.

The Government has now issued a policy statement confirming that they intend to legislate to ring-fence rent debt accrued during the pandemic by businesses affected by enforced closures. This means that any rental payments falling due between March 2020 and the date of removal of restrictions for the particular sector in which the tenant operates will fall under a new Government scheme.

The moratorium on eviction has been extended until 25 March 2022 (unless legislation is passed prior to this date) as has the restriction on using CRAR (Commercial Rent Arrears Recovery), a statutory procedure which enables the tenant’s goods to be seized and sold to discharge rent arrears, which currently requires arrears of 554 days to be used. Similarly, the service of Winding Up Petitions on the back on unpaid rent is restricted until 30 September 2021, with a further announcement expected in due course.

The Government has previously published a voluntary Code of Practice which encouraged landlords and tenants to work together to protect viable businesses experiencing difficulties as a result of the pandemic. The guidance set out a framework for requests for concessions on rental payment, such as rent deferrals and waivers dependant on the tenant’s ability to trade.

The Government will now go a step further and introduce a binding Arbitration scheme. This is intended to be a last resort where no resolution can be found through negotiation. It is stated to be the Government’s expectation that landlords should share the financial burden with their tenants where they are able to do so and allow breathing space for the tenants to agree new terms.

It is also made clear that tenants not affected by closures and who have the means to pay are expected to pay. Rent must be paid as normal by all tenants from the point of restrictions being lifted for their specific sector.

Once the new scheme is in place, landlords will be able to evict tenants for non-payment of rent incurred before or after the ring-fenced period; evict any tenants for arrears not impacted by the Covid-19 business closures; and charge interest on arrears incurred outside of the ring-fenced period.

The Arbitration scheme is intended to be an “impartial and manageable” process which will provide faster and easier resolution than through the Courts. The parties will be bound by the Arbitrator’s decision and any rent debts accrued must be paid by the tenant in accordance with that decision.

The parties will both be expected to contribute towards the costs of the Arbitration, however where a party is found not to have negotiated “in the spirit of the legislative principles”, Arbitrators may grant the costs of Arbitration as part of their decision.

We await the details of the process and to see the result of this approach in practice. One thing is certain, with the Court system experiencing huge back-logs the Arbitration process will aid the speed with which a decision can be obtained. Whether the tenant is able to meet the demands of the Arbitrator’s decision remains to be seen in each individual case. For more information on this or any other matters concerning Commercial Leases, please do not hesitate to contact our specialist Litigation Team.

The team at FTA Law provides advice to clients across the commercial and healthcare sectors with many of our instructions coming from referrals from long standing clients and industry contacts.

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