The Commercial Rent (Coronavirus) Act 2022 (the "Act") came into force on 24 March 2022, as previously commented on here.
Yesterday, on 7 April 2022, the Government published a revised Code of Practice (the "Code"), which sits alongside the Act and aims to: (i) clarify how the Act should be applied; and (ii) provide practical guidance to both arbitrators and participants in the arbitration.
Whilst the Code is not legally binding in the same way as the Act, arbitrators will no doubt pay careful attention to it and are likely to use it as a reference point when making decisions.
Amongst other things, the Code set outs key behaviours that landlords and tenants are expected to exhibit, when either negotiating or undertaking arbitration:
- being transparent and collaborative;
- having a unified approach (i.e. working effectively with third party stakeholders such as government bodies, utility companies and financial institutions);
- acting reasonably and responsibly; and
- aiming to resolve disputes swiftly.
The Code also sets out (in more detail than we have seen previously) the type of evidence that landlords and tenants may wish to refer to when making, or defending, a claim for relief.
The list includes:
- existing and anticipated credit/debit balance;
- business performance since March 2020;
- tenant’s assets (noting that some may be liquid assets such as cash and other may be plant and machinery which cannot be sold without ending the business);
- position of the tenant with other tenancies i.e., ability to absorb the costs within those other tenancies;
- government assistance received by the tenant including loans and grants (which may not have covered rent but provided some financial support to the business);
- dividend and bonus payments to shareholders;
- excessive or unreasonable dividend payments to directors (having regard for the fact that director dividends may be the director’s only income during the ringfenced period);
- overdue invoices or tax demands;
- unpaid or returned cheques or electronic payments;
- exceeding overdraft limits;
- creditor demands;
- money judgments;
- expert evidence received as to the tenant’s current trading position, e.g., from the tenant’s accountant;
- shortfalls in share issues;
- evidence of prior refusal of further credit, funding, or lending, (although the possibility that the tenant could obtain finance if it has not already applied for it, is not to be considered a factor);
- failure to meet budget projections;
- loss of important contracts;
- insolvency of a major customer;
- unexpected retentions;
- knowledge of a lack of working capital; and
- loss of key personnel or staff redundancy.
Lastly, the Code also provides examples of arbitration referral forms that parties could use to initiate an arbitration under the Act. However, it is worth noting that each arbitration body will have its own version of the form which should be used.
If you have any queries at all in relation to the Code or the Act, do just let us know.
The updated Commercial Rent Code of Practice sets out what the arbitration process looks like, the evidence that is considered, and the principles on which arbitration awards are made.