The Commercial Rent (Coronavirus) Act 2022 (the “Act”) came into force on 24 March 2022, which introduced an arbitration scheme to resolve disputes between landlords and tenants concerning Covid-related rent arrears.
However, despite there only being a 6 month window in which these rent arrears can be referred to arbitration under the Act, we have only just now started to see cases making their way through the process.
The following is a brief summary of the three known arbitral awards that have been made to date.
Signet Trading Limited Applicant and (1) Fprop Offices (Nominee) 4 Limited (2) Fprop Offices (Nominee) 5 Limited
In this case, the tenant sought relief from payment of a protected rent debt in relation to its registered office.
The tenant operated retail stores across the country and on 23 March 2020, as a result of COVID-19, it was forced to close these stores.
Under the Act, the rent due is only a “protected rent debt” where the whole or part of the business carried on at the relevant premises, or the premises itself, was subject to a Government-mandated closure requirement.
The tenant submitted that the premises in question were subject to a closure requirement, as a result of a regulation that required retail shops to close.
The tenant further submitted that because its business was a retail business, and the purpose of the premises in question was the support of that retail business, the regulations also applied to the (office) premises in question.
However, unsurprisingly, the arbitrator found that the tenant was not offering goods for sale in a shop from the relevant premises and that the regulations never imposed any closure requirement on offices.
The referral was accordingly dismissed and the tenant remained liable, in full, for its arrears at the premises.
Commerz Real Investmentgesellschaft mbH and RHL Realisations 2022 Limited (formerly Rush Hair Limited)
Here, the landlord asked the arbitrator for a ruling that the tenant was not entitled to relief under the Act because its business was not viable (under any circumstances) and the granting of relief could not, therefore, preserve the viability of the tenant, as required by the Act.
During the course of the arbitration, the tenant entered into creditor’s voluntary liquidation.
The landlord submitted that the tenant was in good financial health at the time of the landlord’s formal proposal, given that it had allegedly already paid legal fees of approximately £30,000 in relation to the dispute.
However, the tenant’s accounts also showed that it owed creditors sums in excess of £9 million.
The arbitrator found that the tenant’s business was not viable and would not become viable, even if relief from payment of the £81,000 rent debt was granted.
The arbitrator noted that the tenant had entered into creditor’s voluntary liquidation and therefore must have been insolvent – the tenant had also subsequently stopped trading and there was no realistic prospect of its business continuing.
The referral was dismissed and relief from liability for the rent debt was not granted.
KXDNA and 60 SA Limited
This award related to a procedural aspect of the Act, and is not the final outcome of the arbitration.
Section 11 of the Act requires any reference to arbitration to include a formal proposal for resolving the matter of relief from payment. Each party is also able to put forward a revised proposal within 28 days of its initial proposal.
In this case, the tenant proposed to pay £407,000, whereas the landlord’s proposal was that it would be prepared to receive £1,354,527.
The landlord relied on an expert, who attested that the tenant could pay the higher sum while preserving its viability.
In his report, the expert made a few arithmetical errors that were notified to the arbitrator by the landlord.
In accordance with its powers under Section 34 of the Arbitration Act 1996, the arbitrator ordered that the landlord could amend its initial proposal to correct the arithmetical errors, provided that such “corrections” did not amount to a substantive change to the methodology, as to do so would involve making a revised proposal under Section 11.
Notwithstanding this, the landlord submitted an amended proposal which sought to make such substantive changes
This partial award considered the status of the landlord’s disputed proposal – namely, whether it was a revised proposal under Section 11 (as the tenant contended) or an amended initial proposal permitted by the arbitrator’s procedural order (as the landlord contended).
Following submissions from the parties, the arbitrator concluded that, while the disputed proposal was not an amended initial proposal (as it failed to meet the clear requirements of the procedural order), it also did not amount to a formal proposal at all, as it was not “expressed to be made for the purposes of Section 11”.
The landlord could therefore submit a revised proposal in due course.
There is a rapidly-shrinking window within which Covid-related rent arrears can be referred to arbitration under the Act. As such, we anticipate that more awards will be published in the coming weeks.
In the meantime, landlords and tenants should be aware that the current deadline for arbitration referrals is 24 September 2022 (albeit, given the notice requirements in the Act, the process must be initiated by 27 August 2022 at the latest).
If you have any questions in relation to the Act, or would like to discuss your options in relation to outstanding rent arrears, please do get in touch.