An update on Commercial Rent (Coronavirus) Bill: the next stage of the moratorium on commercial rents
The Government has this afternoon published the Commercial Rent (Coronavirus) Bill to accompany its earlier press release. A few additional details emerge.
Definitions
Section 2 gives a definition of ‘rent’ that includes service charges, interest and VAT.
Section 4 provides guidance as to the period of arrears that are going to be relevant: the period will not extend beyond 2pm on 21 March 2020 to 11:55pm on 18 July 2021 in England and 2pm on 21 March 2020 to 6am on 7 August 2021 in Wales.
Section 6 sets out that whether there exists a protected rent debt is included in the reference to a matter of relief. Arguments of implied terms as to the suspension of rent may well therefore appear in the arbitrations.
The principles
Arbitrators will dismiss the arbitration reference if the parties settle, the tenancy is not a business tenancy or there is no protected rent debt per Section 13(2). The same will occur if the arbitrator determines that the tenant’s business would not be viable even if the tenant were to be given relief from payment (Section 13(3)). However, if the arbitrator determines that either the tenant’s business is viable or would be viable if relief were given, they must consider making a relief from payment award.
Perhaps the most interesting sections are Sections 15 and 16 as these finally set out the principles upon which awards will be made:
15
(1) The principles in this section are—
(a) that any award should be aimed at—
(i) preserving (in a case falling within section 13(4)(a)), or
(ii) restoring and preserving (in a case falling within section 13(4)(b)),
the viability of the business of the tenant, so far as that is consistent with preserving the landlord’s solvency, and
(b) that the tenant should, so far as it is consistent with the principle in paragraph (a) to do so, be required to meet its obligations as regards the payment of protected rent in full and without delay.
(2) In considering the viability of the tenant’s business and the landlord’s solvency for the purposes of subsection (1), the arbitrator must disregard anything done by the tenant or the landlord with a view to manipulating their financial affairs so as to improve their position in relation to an award to be made under section 14.
(3) For the purposes of this section, the landlord is “solvent” unless the landlord is, or is likely to become, unable to pay their debts as they fall due.
16
(1) In assessing the viability of the business of the tenant, the arbitrator must, so far as known, have regard to
(a) the assets and liabilities of the tenant, including any other tenancies to which the tenant is a party,
(b) the previous rental payments made under the business tenancy from the tenant to the landlord,
(c) the impact of coronavirus on the business of the tenant, and
(d) any other information relating to the financial position of the tenant that the arbitrator considers appropriate.
(2) In assessing the solvency of the landlord, the arbitrator must, so far as known, have regard to—
(a) the assets and liabilities of the landlord, including any other tenancies to which the landlord is a party, and
(b) any other information relating to the financial position of the landlord that the arbitrator considers appropriate.
(3) In making an assessment under subsection (1) or (2), the arbitrator must disregard the possibility of the tenant or the landlord (as the case may be)—
(a) borrowing money, or
(b) restructuring its business.
Awards are to be delivered speedily; the Bill envisages the making of awards within 14 days of any oral hearing. In addition, the awards will be published, but with any confidential information redacted.
Restrictions on other claims
Schedule 2 sets out that landlords of business tenancies will be barred, during a newly defined moratorium period (date on which the Act is passed to the end of any arbitration period), from making a debt claim for relevant rent arrears. This will include a counterclaim. In addition, any relevant claim made on or after 10 November 2021 (but before the Act is passed) can be stayed.
If judgment is given between 10 November 2021 and the date the Act is passed on a debt claim made between 10 November 2021 and the date the Act is passed, Schedule 2 sets out that it can still be referred to arbitration as long as it remains unpaid. In addition, it cannot be enforced before the end of the new moratorium period. Arbitrators will essentially have the power to alter relevant court judgments. However, the wording of paragraph 3 of Schedule 2 may invite some tenants to argue that they can still refer a judgment to arbitration if given between those dates even if the claim was made before 10 November 2021.
Similar restrictions will exist for CRAR, forfeiture, the landlord’s right to appropriate rent, tenancy deposits, and winding up/bankruptcy petitions.
It seems that the Government has therefore answered my previous question this morning, as to whether its announcement that from today it would protect commercial tenants from debt claims and bankruptcy petitions in the courts in relation to rent arrears accrued during the pandemic, would be in the Bill or by statutory instrument. The reality is that practioners will have to pay attention to Schedule 2 from today, not from some future date when the Bill is passed.
If this Bill passes, there may well be arguments by landlords under Article 1 of Protocol 1 to the ECHR. The saga continues.
The full Bill can be viewed
here.
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