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Commercial real estate & Real estate disputes & Restructuring & Insolvency
The first arbitration award under the Act was made on 5 July 2022 and has now been published.
1 minute read
14 July 2022
On 24 March 2022 the Commercial Rent (Coronavirus) Bill received Royal Assent becoming the Commercial Rent (Coronavirus) Act 2022. It offers landlords and certain tenants the opportunity to resolve covid-related rent arrears disputes via a new binding arbitration process.
The Commercial Rent (Coronavirus) Act 2022 is intended to support landlords and tenants in resolving disputes relating to commercial rent arrears that accrued while businesses were forced, by law, to close during the COVID-19 pandemic. Specifically, it ring-fences rent debts built up because of mandated business closures and introduces a new binding arbitration process to resolve disputes relating to those protected rent debts.
To apply, the tenant’s business must have been mandated closed under the Health Protection (Coronavirus Closure) (England) Regulations 2020 (SI 2020/327) (the “21 March Regulation”). These included, amongst others, retail shops.
The Act came into effect on 25 March 2022 and will remain available to landlords and tenants until 24 September 2022.
Any tenant wanting relief from the terms of its lease will be required to show, firstly, that the premises were caught by the 21 March Regulation mandated closures; and, secondly, it has a viable business and that rent at full value is unaffordable.
The tenant applicant, Signet Trading Limited (commonly known in the UK as H. Samuel and Ernest Jones), sought relief in respect of unpaid rent in the sum of £448,043.04 for its registered office. The premises is not a retail shop, but rather an office from which the board of directors worked, together with staff responsible for buying merchandise, marketing, digital, human resources, retails operations, legal, finance and IT. The staff, save for two members, were instructed to work from home during the pandemic.
The arbitrator was first asked to deal with the preliminary question of whether the Act applied to the premises at all. The landlord respondent argued that the premises were not mandated closed under the 21 March Regulation as the premises are not used for retail purposes.
Conversely, the tenant argued that because the purpose of the premises was to support its retail business, the restrictions of the 21 March Regulation applied to it too. Ultimately the arbitrator was not persuaded by the tenant’s arguments and determined that the debt was not a protected debt to which the Act applied.
The outcome will be a welcome decision for commercial landlords.
Full details of the arguments made can be found in the arbitrator’s decision (which can be found here). It should be noted that a second award has now been published in the case of KXDNA Limited v 60 SA limited.
How effective is the Act?
Whilst the arguments in this case are, no doubt, interesting, what we find most interesting is that very few landlords or tenants appear to be referring matters to arbitration under the Act.
It is surprising that there are so few published referrals, despite the procedure being available for some four months (and with only two months remaining). If the objective behind the Act was to encourage parties to reach mutual agreements, it appears to have worked. Or perhaps the Act is not fit for purpose as landlord and tenants that might benefit from such arbitration are put off from using it.
Perhaps the uncertainty of outcome has acted as a deterrent? Or maybe landlords and tenants do not want to publicly disclose their finances? Whatever the reason, the Act does not appear to be an attractive option to either landlord or tenant.
14 July 2022
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