Coronavirus and Commercial Tenants – Where are we now?
Since March 2020, the government imposed moratorium placed limitations on landlords seeking possession for rental arrears in respect of commercial tenancies; this was extended in June 2021 until 25 March 2022.
This extension was to allow sufficient time for new legislation to be drafted and provide landlords and tenants in England with additional time to negotiate and settle outstanding rental arrears.
Summary of the current position
In the recent decision of London Trocadero (2021) LLP v Picturehouse Cinemas Ltd, the Judge granted summary judgment to the landlord in respect of rent arrears and dismissed the tenant’s application to adjourn the summary judgment application on the basis of the government’s announcement that it intends to legislate for a binding arbitration scheme relating to rent arrears. This is the third case this year where the arguments advanced by the tenant to avoid paying rent during the pandemic have failed and the decision comes on the back of Commerz Real Investmentgesellschafft mbh v TFS Stores Ltd  and Bank of New York Mellon (international) Ltd v Cine-UK Ltd , in which the tenants’ arguments were rejected by High Court Masters, including the argument that the rent cesser term in the lease applied because the premises had been ‘damaged’ by coronavirus, which was an insured risk.
The decision will be welcomed by landlords and will serve as a reminder for tenants who have been either unwilling or unable to reach an agreement with their landlord regarding payments due whilst they were unable to trade during the pandemic.
The Commercial Rent (Coronavirus) Bill
The Government has now announced, in the form of the Commercial Rent (Coronavirus) Bill, proposed new laws and a further Code of Practice with the objective of resolving remaining commercial rent arrears accrued during the COVID-19 pandemic. The proposed plans, if enacted, will “ringfence” Covid related rent arrears and establish a binding arbitration system for those debts that cannot be resolved by agreement in accordance with the new Code. The new regime applies only to rental arrears on business tenancies relating to any period between 21 March 2020 and 18 July 2021 during which a tenant was obliged under Covid regulations to close the whole or part of its business. It will include service charges, interest and sums payable to top up rent deposits. However, is limited to sums which relate to the Protected Period.
It cannot be used to re-open existing rent concessions/settlements which have already been agreed between the parties and parties are encouraged to seek settlement where possible. Where it does apply, the arbitrator will be able to write off or defer (for up to 24 months) payment of arrears which relate to a Protected Period, in line with the updated Code of Practice, which can be found on the government website.
This will mean a return to normal contractual arrangements for those tenants able to pay rent debts in full and not affected by closures, and for any debts accrued outside of the Protected Period.
Landlords who issued before 10 November 2021 may continue proceedings. In claims where landlords issued on or after 10 November 2021, the tenant is entitled to have the proceedings stayed pending arbitration, and if judgment in such proceedings is given, the judgment cannot be enforced until the six month window for invoking the arbitration scheme has passed or, the conclusion of any arbitration referred within the six month window.
The draft Bill is expected to come into force by March 2022. However as noted above, tenants will be entitled to a stay of any court proceedings for recovery of coronavirus arrears, to which the arbitration scheme applies, issued on or after 10 November 2021.
Either the landlord or the tenant may refer arrears which relate to a protected period to arbitration during a period of six months starting on the date the legislation comes into force. It appears there will be no further protections for tenants who fail to apply for arbitration during the six month window.
Since the legislation shall not affect existing agreements, our advice would be for parties to come to agreements on their own terms, before mandatory arbitration is forced upon them.
SLC Solicitors litigation team can assist with all types of rent and service charge arrears, contact Justine Oliver Ward for more information – firstname.lastname@example.org