Shorter Reads

Commercial Rent (Coronavirus) Act 2022

The first arbitration award under the Act was made on 5 July 2022 and has now been published.

1 minute read

Published 14 July 2022

Authors

Share

Key information

  • Specialisms
  • Real Estate
  • Services
  • Commercial real estate
  • Real estate disputes
  • Restructuring & Insolvency

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 first arbitration award under the Act was made on 5 July 2022 and published this week.

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.

Message us on WhatsApp

Related latest updates
PREV NEXT

Related content

Arrow Back to Insights

Shorter Reads

Commercial Rent (Coronavirus) Act 2022

The first arbitration award under the Act was made on 5 July 2022 and has now been published.

Published 14 July 2022

Associated sectors / services

Authors

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 first arbitration award under the Act was made on 5 July 2022 and published this week.

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.

Associated sectors / services

Authors

Need some more information? Make an enquiry below.

    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):

    Article contributor

    Enjoy reading our articles? why not subscribe to notifications so you’ll never miss one?

    Subscribe to our articles

    Message us on WhatsApp

    Please note that Collyer Bristow provides this service during office hours for general information and enquiries only and that no legal or other professional advice will be provided over the WhatsApp platform. Please also note that if you choose to use this platform your personal data is likely to be processed outside the UK and EEA, including in the US. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem. Collyer Bristow LLP accepts no liability for any loss or damage which may arise from reliance on information provided. All information will be deleted immediately upon completion of a conversation.

    I accept Close

    Close
    Scroll up
    ExpandNeed some help?Toggle

    Get in touch

    Get in touch using our form below.