The Commercial Rent (Coronavirus) Act 2022 (the “Act”) has now received Royal Assent and is in force as of 24 March 2022.

The Act creates a mandatory arbitration process for the resolution of disputes between landlords and tenants in relation to “protected rent debts” – i.e. rent arrears that have accrued during periods that businesses were forced to close by the Government – and introduces a new moratorium on the exercise of CRAR, forfeiture and the presentation of winding-up petitions, in respect of those protected rent debts.

In relation to rent debts that fall outside of the scope of the arbitration scheme, the existing moratoriums on CRAR, forfeiture and winding-up petitions have now been lifted.

We provided a summary of the key provisions in the legislation in November 2021 and refer you to our previous note. This still represents an accurate summary of the provisions in the Act.

However, there have been a few additions to the legislation, as it passed through Parliament, and we provide a brief summary of the new provisions below.

New Provisions

Section 14(9) and (10): Arbitration awards alter the terms of the tenancy

In the event that an arbitrator reduces the amount of rent arrears that the tenant is liable for, the effect of that award is to alter the terms of the lease.

The implication of this is that the tenant’s obligation to pay rent is also changed for anyone else who takes over the lease or may become liable for the rent. For example, a guarantor or former tenant would also benefit from the reduction. Similarly, a third party taking an assignment of the lease (or of the right to receive the rents) would also be bound by the arbitrator’s award.

Section 24: Alteration of moratorium period

A mechanism has been added by which the moratorium period in respect of protected rent debts (i.e. the 6 months from 24 March 2022) can be extended.

It seems likely that this provision is guarding against the risk that there are not enough arbitrators to deal with all of the referrals that may be made by tenants between now and 24 September 2022 and the Government decides to extend the initial 6 month period in which protected rent debts can be referred to arbitration.

Schedule 2 paragraph 3: Definition of ‘tenant’ in respect of debt claims

The right to apply for a stay of debt claims has been extended to other parties liable for the rent on an indemnity basis, including former tenants. 

This brings the right to apply for a stay of debt claims in line with Section 14, which has been amended to provide that guarantors and former tenants will also benefit from any relief granted by an arbitrator.

Arbitration Process – Next Steps

Now that the Act is in force, referrals to arbitration can be made until at least 24 September 2022.

However, parties wishing to initiate the arbitration process must first notify the other party of that intention, and give the respondent an opportunity to respond.

Upon receipt of a response, or at the end of 28 days after notifying the respondent, whichever comes sooner, the initiating party may refer the matter to arbitration.

We recommend, therefore, that anyone who is thinking about making a referral, acts on this promptly, if it wants to ensure it can make a referral by 24 September 2022, i.e. given that the Act effectively requires the referring party to give the other party at least one month’s prior notice.

For further details of the arbitration process, please refer to our earlier article here.

Conclusion

Both landlords and tenants should now carefully consider the provisions of the Act when dealing with rent arrears which pre-date 24 March 2022. The window for referral to an arbitration is relatively short, meaning that parties which might want to use the arbitration scheme will need to move quickly.

The differing moratorium provisions for protected and unprotected arrears also mean that, when considering enforcement, careful consideration needs to be given to when the arrears fell due.

Whilst the Act looks very similar to the legislation as originally drafted, there are some significant changes that will have an impact on landlord, tenants and other parties who may be liable under a lease.

If you have any questions in relation to the Act, or would like to discuss your options for disputing or recovering rent arrears, please do get in touch.