Commercial Rent (Coronavirus) Act 2022 and Updated Code of Practice
8 April 2022
The Commercial Rent (Coronavirus) Act 2022, first introduced in November 2021, was granted Royal Assent on 24 March 2022, with most of the Act coming into force on that day.
The Act introduces a binding arbitration scheme available to landlords and tenants unable to reach an agreement on commercial rent debts built up during periods of Coronavirus restrictions in England and Wales. Either party has six months to refer a dispute to arbitration, to be administered by Government-approved arbitration bodies.
One of the key elements of the Act is that Covid lockdown arrears for unpaid annual rents, service charges, and insurance relating to a tenant in business premises who was adversely affected by Coronavirus (that was subject to a lockdown closure requirement for the period starting on 21 March 2020), will be ring-fenced so that a landlord’s remedies continue to be suspended for such “protected rent debts” until the parties have reached a settlement, or the timeframe for binding arbitration is over. The ring-fenced period extends from 21 March 2020 until the last date operating restrictions were removed from the relevant sector.
When passed, the Act contained 31 sections divided into four parts:
- Part 1 (sections 1 to 6) gives an overview of the Act and defines the key terms. It extends to England and Wales only, except for parts of it that interact with Part 3 (see below) and so extend to Scotland and Northern Ireland;
- Part 2 (sections 7 to 22, and Schedule 1) introduces and sets the boundaries of a binding arbitration process to be used when business landlords and tenants cannot agree on how to deal with outstanding rent arrears. It extends to England and Wales only;
- Part 3 (sections 23 to 27, and Schedules 2 and 3) extends existing restrictions on enforcing business rent arrears, to ensure they cannot be used to undermine the arbitration process. It extends to England and Wales, with certain provisions also extending to Scotland and Northern Ireland; and
- Part 4 (sections 28 to 31) deals with the scope and extent of the Act.
A full version of the Act can be viewed here.
Schedule 3 of the Act includes a prohibition (during the moratorium period as defined in Section 23) in relation to the presentation of winding up or bankruptcy petitions in relation to a protected debt rent. Schedule 3 of the Act also sets out the circumstances upon which certain bankruptcy orders made on or after 10 November 2021 are to be regarded as void.
In addition, the Act, at Section 23 and Schedule 2, contains details of a temporary moratorium on enforcement of protected rent debts which includes, inter alia, making a debt claim in civil proceedings, enforcing a right of re-entry or forfeiture, and using a tenant’s deposit.
It is important to note the legally binding arbitration process for outstanding commercial lockdown arrears applies in England and Wales. Not all of the Act currently applies to Northern Ireland and Scotland. Part 4 and section 31 of the Act set out which parts apply to England, Wales, Scotland and Northern Ireland.
Landlords and tenants are also encouraged to negotiate the debts through the updated Commercial Rent Code of Practice published on 7 April 2022. This Code is comprised of three sections:
- Part One applies to all business tenancies and sets out the behaviours expected of landlords and tenants including when they are in negotiation. It is therefore designed for use by landlords and tenants within England, Wales, Scotland, and Northern Ireland.
- Part Two provides guidance on the Commercial Rent (Coronavirus) Act 2022 (“the Act”) including any applicable legal obligations. This section is therefore designed for use by Landlords and Tenants in England and Wales (where the Act applies) only.
- Part Three provides information on remedies and measures and is generally applicable to England and Wales only, with the exception of paragraph 119 which applies only to Scotland and 120 which applies only to Northern Ireland.
Annexe A of the Code is useful in that it sets out timelines for ascertaining the ring-fenced periods for different sectors. A copy of the Code can be viewed here.
Given the recent introduction of the Act and Code, landlords and tenants who are unsure what their options are should seek expert advice in order to establish the best course of action. If your business is affected by any of these issues or requires assistance, please contact our Insolvency/Debt Recovery team to discuss.
This article is for general guidance only and should not be regarded as a substitute for specific legal advice.