PANDEMIC RENT DEBT DILEMMA IN THE UK
With a view to carving a path through the ongoing issue of rent debts accrued during the pandemic, and following ministerial statements in June 2021, in November the UK government finally published the draft Commercial Rent (Coronavirus) Bill setting out a new regime of binding arbitration to resolve certain COVID-19 rent debts.
The Bill is expected to become law in March 2022. At the time of writing, the Bill is in first draft form only and the final provisions may change prior to enactment.
So, how is the government’s approach shaping up? The new arbitration regime applies to “protected rent debts” being rent, service charge, insurance rent, VAT and interest due under business tenancies (excluding licences and tenancies at will) for debts accrued for set periods where certain sectors were affected by forced closures or other restrictions on trade. It is of note that, where a landlord has already taken protected rent debts from a rent deposit account, these sums can still be taken into the new scheme and will be treated as unpaid rents for this purpose.
There is also a new Code of Practice, which landlords and tenants are expected to comply with to resolve protected rent debts either by agreement or, if agreement cannot be reached, by way of the binding arbitration scheme.
The arbitration scheme
This new statutory arbitration scheme will apply exclusively to unpaid protected rent debts where a landlord and tenant have failed to reach prior agreement.
The government has repeatedly made clear that it expects landlords and tenants to share the financial impact of the pandemic by way of deferment or concession on the rents owed (underpinned by a key principle rhetoric that tenants that ‘can pay, should pay’).
Jan-Mar 2022 issue
CMS Cameron McKenna Nabarro Olswang LLP