Coronavirus arrears recovery scheme and new Code of Practice announced
The government has introduced draft legislation to Parliament which will establish a binding arbitration process for commercial landlords and tenants with regard to rent arrears resulting from periods of enforced lockdown during the COVID-19 pandemic.
The Commercial Rent (Coronavirus) Bill was put before Parliament on 9 November and is expected to come into force in March 2022. In the meantime the Government has announced a new Code of Practice for landlords and tenants setting out “a clear process for settling outstanding debts before the new arbitration process comes into force”. This replaces the ‘Code of Practice for commercial property relationships’ which was published in June 2020 and updated in April 2021.
Our commercial property team have outlined the present main provisions in the latest factsheet, although please note the legislation may well be amended during the approval process.
The draft legislation and Code of Practice are based on the underlying principles of preserving viable businesses (but not at the expense of landlords) and encouraging landlords and tenants to work together to reach their own agreements. According to Business Secretary Kwasi Kwarteng, the government expects “tenants capable of paying rent to do so”.
The Bill does still need to be ratified and the Code of Practice is not (as yet) binding but the measures will provide further protection to businesses which have accumulated debts as a result of enforced closures. The availability of arbitration should however be seen as a last resort. The government’s existing moratorium on eviction, in place until 25 March 2022, has already provided time for landlords and tenants to negotiate how to share the cost of commercial rent debts caused by the pandemic so it remains to be seen what effect the legislation will have in practice but these negotiations will now be underpinned by the new Code, providing landlords and tenants with a clear process for settling outstanding debts before
the new arbitration process comes into force. The new Legislation will also establish a legally-binding arbitration process for those commercial landlords and tenants who are not able to reach agreement.
If you would like to discuss the Coronavirus arrears recovery scheme and how the new Code of Practice will impact you, please contact our Commercial Property Partner, Julia Ferguson.