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Commercial Rent Arrears - Real Estate Update for Landlords and Tenants

The Commercial Rent (Coronavirus) Bill (the “Bill”) is due for enactment on 25 March 2022.

The aim of the Bill is to provide those landlords and tenants who have been unable or unwilling to reach agreement so far with the means to resolve commercial rent arrears built up during the pandemic (although only those arrears accrued during the period that business tenants were mandated to close).

What will happen in practice once the Bill is enacted?

Much has been written about the potential failings of the Bill and how in practice it will be difficult to make its provisions work. In many cases, however, the Bill’s aim has already been achieved – the mere publication of the Bill and the projected date for the introduction of binding arbitration created a backdrop for settlement and, in our experience, the majority of larger tenants (often falling within the “can pay, won’t pay” category) and their landlords have done just that.

Our estimation is that, of those unresolved disputes left (which may still be plentiful in number), many will be in relation to the smaller retail tenants for whom the Bill’s requirement for viability will be of real concern. Where applications are made, we think we may see something more akin to rough-and-ready justice than procedural point-scoring.

Who will apply?

Those with most to gain are tenants – if they want a chance to reduce their outstanding rents, they will be looking to appoint an arbitrator. Otherwise, after the 6-month application period has expired, all the rent will be due and the protections against landlord action will be lifted. Where tenants may have failed to engage with landlords so far, on application they will be required to put forward a proposal, which will at least be an opener for discussions.

Landlords may be less likely to instigate arbitration as where an arbitration award is made, they may still need to use enforcement to get the monies in. On the other hand, if landlords wait for the expiry of the 6 month application period, the full range of enforcement tools will be at their disposal to seek full recovery. They might consider serving a statutory demand which may give them an enhanced platform from which to negotiate and, at the very least, should flush out whether the tenant is good for the money.

As the next few months unfold we will see whether, as predicted by some, the thousands of applications materialise and whether those who apply can make the new procedure work to achieve results which allow parties to move on and focus on stabilising their businesses after what has been a difficult period for all.