By James Walters, Associate Solicitor in Real Estate Disputes at Irwin Mitchell.

The Government has today issued a press release concerning guidance on commercial property arrears during Covid-19 which states that:

  1. The Government has confirmed it will introduce a binding arbitration process to resolve commercial rent arrears which arose during the COVID-19 pandemic (excluding any non-pandemic arrears) and a new Code of Practice regarding how landlords and tenants should deal with COVID-19 arrears.
  1. “…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”. This suggests that there will be pressure on landlords to write off rent debts. It may also suggest that the arbitrator will be given the power to write off some or all of a debt.
  1. A new Commercial Rent (Coronavirus) Bill will be introduced in Parliament today, which will contain details of the arbitration scheme. It will apply to businesses which were mandated to close, in full or in part, from March 2020 until the date restrictions ended for their sector.
  1. “The window to apply for arbitration will be 6 months from the date legislation comes into force, with a maximum time frame to repay of 24 months”. It is not clear what this means. It could suggest that debts which have not been repaid within the 24 months may be deemed to be written off, or it may mean that 24 months is the longest period to repay that an arbitrator can order. We need to see more detail.
  1. From today “the government is also protecting 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”. We expect the Government to issue a statutory instrument later today which will impose these new rules on landlords.
  1. “Landlords are encouraged to attempt to reach a negotiated agreement with tenants rather than pursue a CCJ. Where a CCJ is issued, this can be considered within the legal arbitration process when this comes into effect.” This suggests that the arbitrator may also have powers to interfere with existing court proceedings.

James Walters, Associate Solicitor in Real Estate Disputes at Irwin Mitchell said:

“As ever, the devil will be in the detail, and it is very unclear how these proposals will work in practice. They suggest that landlords with unpaid COVID-19 rent debts may struggle to recover them, especially if it is perceived that they are in a better financial position than their tenants.

"Great caution should be taken to ensure that landlords are treated fairly in this process. No previous notice was given of the Government’s announcement of a halt to enforcement proceedings today, which may lead to landlords and tenants incurring unnecessary costs.”