Rent Collection and the Government’s new Covid Bill
We explore the new rules and offer some practical tips for landlords
On 9th November 2021, the Commercial Rent (Coronavirus) Bill had its first reading in the Houses of Parliament. The Code of Practice for Commercial Property Relationships following the COVID-19 Pandemic was also released.
The Bill now adds to the restrictions currently in place that prevent a landlord from taking certain enforcement action on commercial leases: the moratorium, until 25th March 2022, on forfeiture, using a certificated bailiff and presenting winding-up petitions with regard to rent arrears.
This Bill has been widely expected, and most of us have seen articles in the press about the Government’s arbitration scheme concerning rent arrears that built up through COVID. We now explore the draft Bill and provide some tips and pointers.
The Bill establishes a mechanism to resolve any disputes relating to certain rent arrears incurred during the pandemic. It stands on the premise that tenants who can pay should pay, but an arbitrator should decide in the absence of an agreement. The Bill also establishes a further moratorium from the day the Act is passed until the last day a reference could be made to an arbitrator. We understand that period to be six months from the date the Bill is passed.
Our 1st tip is to ensure that one checks whether the Bill covers the debt in question before embarking on any enforcement action.
If it is, it will therefore be covered by an extended moratorium. If the debt is not a Protected Rent Debt, one can enforce payment.
Our 2nd tip relates to establishing whether the Act protects the debt in question.
Not all debts are protected. Protected Rent Debt is unpaid rent that built up because a tenancy was adversely affected by COVID. Protected Rent debt also includes service charge insurance interest and VAT and drawing down on a rent deposit.
The definition of ‘adversely affected’ only relates to tenancies if, during the relevant period, the tenant was required to close the whole or part of its business due to a closure requirement under the Public Health (control of disease) Act 1984. The Protected Period is from 21st March 2020 until the business was permitted to reopen. This Bill does not apply if a business was not required to stop operations, such as an office-based organisation or an essential shop.
The main tenet of the Act is the arbitration process. Before a referral to an arbitrator can be made, the party must notify the other of its intention and allow 14 days to respond. As above, the deadline for referral to an arbitrator is six months from when the Bill comes into force.
As such, one needs to allow adequate time for several periods of 14 days to expire (there are other time limits) before one is out of time for a referral. A referral must include a proposal for resolving the dispute with supporting documentation, the fee for the referral and any evidence or witness statements. The Bill provides for the parties to agree to have a hearing for the arbitrator to make their own decision. The decision and the hearing are open to the public.
Our 3rd tip is to think about the time periods and allow enough time for a referral or potentially to ‘run the clock’ so that the other party is out of time.
If the parties fail to make a referral in time, the arrears stand along with the normal enforcement tools available. The arbitrator can award to waive part, or all of the arrears, to defer payments over 24 months or write off the interest.
Our 4th tip relates to reaching an agreement early.
Agreements reached in writing mean that the arbitration process cannot be activated. So one route available to landlords and tenants is to come to an early agreement and document it.
This evolving rent collection landscape will be fast-moving and will need a lot of thought about how to handle it best. Credit control is a key strength within Strettons’ extensive asset and property management team, and we are here to advise our clients.
Our 5th and final tip is to analyse any unpaid arrears and distil Protected Rent Debts. Once this is done, we can advise whether to:
- try and reach an early agreement with the tenant
- plan for a referral to an arbitrator by building a case early and securing all the relevant materials and witness statements in good time
- ‘run the clock’ on the arrears so the other party falls out of the time periods
- do nothing and collect the arrears after the time periods have passed or when a tenant wishes to assign their lease or apply for some other consent.
If you have any questions, please get in touch with a member of our commercial portfolio or asset management team.