Perhaps the most notable provisions in the Bill are those dealing with compulsory arbitration. Based on the current draft of the Bill, it would appear the Government are encouraging both landlords and tenants to seek an agreement by negotiation, without recourse to the courts, or an arbitrator. Indeed, a prerequisite to using the arbitration process is that the landlord and tenant have failed to come to an agreement on the matter through negotiation.
What debts are affected?
The arbitration process only applies to ‘protected rent debt’. Broadly speaking, protected rent debt covers arrears accumulated during the period the tenant was forced to close their premises, or had restrictions imposed, in response to the coronavirus pandemic. This only covers rent arrears accumulated during the period 21 March 2020 – 18 July 2021 at the latest. This can be before the 18 July 2021, if the relevant closure requirement or specific restriction was lifted in relation to that specific type of business.
The power of the arbitrator
The arbitrator can make a number of different awards, in accordance with the provisions of the Bill. An arbitrator can dismiss a reference made to them in its entirety, if, for example, a tenant’s business is not viable and would not be so even if the tenant were to be given any relief from payment of any kind.
Underpinning any award made by an arbitrator, is the need to balance the business and financial needs of both the landlord and tenant. Indeed, in accordance with section 15 of the Bill, an award should aim to preserve, or restore and preserve the viability of the business of the tenant, so far as that is consistent with preserving the solvency of the landlord. Therefore, in contrast to current case law on the matter, it would appear this Bill takes greater account of the needs of the tenant and the viability of their business.
In summary, based on the current draft of the Bill, there is a clear emphasis on the need for landlords and tenants to work together to reach an agreement on how best to address the issue of arrears accrued during the pandemic. It is not yet clear how the compulsory arbitration will work in practice, or how successful this will be. However, given the legislation will not be enacted until March 2022 at the earliest, landlords and tenants alike may be minded to act commercially and seek settlement as to the amount of arrears due, without recourse to the arbitration process or the courts, considering both the time and costs involved with arbitration and civil litigation.
How can we help?
In light of the proposed Bill, we are of the view landlords and tenants of commercial premises should in the first instance, seek an agreement on the matter of rent arrears, without referring the matter to an arbitrator or the courts. Our Property Litigation and Dispute Resolution Department can act for either landlords or tenants in without prejudice negotiations and draft the terms of any settlement agreement or consent order. If, however, agreement is not possible, we can advise on your legal position and possible options.
Should you require assistance with the above, or any other commercial lease dispute, please do get in touch with our Property Litigation and Dispute Resolution Department on 0207 228 0071 and we will be happy to assist.