Government introduces new laws and code in bid to resolve commercial rent disputes

Commercial tenants are currently protected from eviction until 25 March 2022 by the lease forfeiture moratorium, which prevents the repossession of commercial premises if businesses are unable to pay their rent due to the pandemic.

The protection, which has been extended around half a dozen times since it was introduced at the start of the pandemic, is intended to provide time for landlords and tenants to negotiate how to share the cost of commercial rent debts that has been accrued.

From today (9 November), these negotiations will be underpinned by a new Code of Practice, providing landlords and tenants with a process for settling outstanding debts before the new arbitration process comes into force.

The Code sets out that, in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord waives some or all rent arrears where they are able to do so.

From 25 March 2022, new laws in the Commercial Rent (Coronavirus) Bill, which is being introduced in Parliament today, will establish a legally-binding arbitration process for commercial landlords and tenants who have not already reached an agreement, following the principles in the Code of Practice.

Subject to Parliamentary passage, this will come into force next year.

The Bill will apply to commercial rent debts related to the mandated closure of certain businesses during the pandemic, including those across the hospitality trade. Debts accrued at other times will not be in scope.

These laws will come into force in England and Wales, and Northern Ireland will have a power in the Bill to introduce similar legislation.

The result of the arbitration process will be a legally-binding agreement the landlord and tenant must adhere to.

"Today’s measures provide commercial landlords and tenants with the clarity and certainty > they need to plan ahead and recover from the pandemic," says Business Secretary Kwasi Kwarteng.

"We encourage landlords and tenants to keep working together to reach their own agreements ahead of the new laws coming into place, and we expect tenants capable of paying rent to do so."

From today, the Government is also introducing measures to protect commercial tenants from debt claims, including County Court Judgements (CCJs), High Court Judgements (HCJs) and bankruptcy petitions, issued against them in relation to rent arrears accrued during the pandemic.

It follows reports in the summer​​ that 'multiple' hospitality businesses have faced court action over unpaid rent accumulated during the pandemic, despite the protections afforded by the lease forfeiture moratorium.

"We welcome the publication of the updated Code of Practice,"says Kate Nicholls, chief executive of trade body UKHospitality.

"Vitally important is the emphasis on ongoing negotiation to share the burden of the impact of lockdowns and restrictions that prevented hospitality businesses from trading for so much of the last 18 months. It is in the long-term interests of landlords and tenants to come together and find solutions that ensure business survival and that do not undermine the economic recovery.

"We share the Government’s view that arbitration should be a last resort and this process must take into account the exceptional and existential level of pain that hospitality businesses have faced over the last 18 months.

"It must not impact this industry’s ability to rapidly recover and create jobs throughout the country."

UKHospitality has previously estimated that around £2.5bn in rent arrears has been built up by hospitality firms during the course of the pandemic.