Rent arrears legislation changes ‘will provide a long-term solution’

By James Ng, head of commercial litigation, Birmingham, mfg Solicitors.

As businesses begin to pick up following the end of the lockdown, commercial landlords and tenants prepare to deal with the rent debts accrued since the start of the pandemic.

Currently, Section 82 of the Coronavirus Act 2020 provides a moratorium of all commercial evictions (currently extended to 25 March 2022) for non-payment of rent accrued since March 2020.

This article considers the government’s plan to legislate to establish a process of binding arbitration for landlords and tenants. The arbitration process is intended to be used as a last resort – parties are still expected to negotiate in good faith in accordance with the soon-to-be revised mandatory Code of Practice.

It is expected that the revised Code of Practice will be stronger and will be made mandatory setting out the principles the Government expect parties to adopt when negotiating. It will be adopted as a precursor to the binding arbitration process.

When the new law is passed, the current measures of protection for tenant will be limited to ring-fenced arrears – this includes rent debt accrued from March 2020 affected by COVID-19 business closures until their sector restrictions are lifted.

This means landlords will be able to evict tenants for non-payment of rent before March 2020 and after the restrictions are removed.

The binding arbitration process will provide a long-term solution to the rent arrears problems and give much needed certainty to landlords and tenants. It has the support of industry stakeholders including the British Retail Consortium, UK Hospitality and British Property Federation. Out of over 500 respondents to the Government call for evidence, 66.3% of responding tenants were in favour of this option.

It will assist in easing the backlog of rent arrears claims in the Court system. For landlords, it may be a more cost-efficient was to recover the rent arrears. Further, unlike Court proceedings, the arbitration process will provide both the landlords and tenants some measures of procedural flexibility and confidentiality.

They can also benefit from the sector expertise and experience of the appointed arbitrators. Whilst no details have been spelt out as yet, it is expected that landlords and tenants who act in good faith and follow the principles in the Code of Practice will share the costs of any arbitration.

It may be that arbitrators may be given the power to order a party to pay all the costs of the arbitration if that party does not act in good faith or adhere to the principles of the Code of Practice.

According to government, it will publish the principles which it will enact as laws in advance of the arbitration system being set up.

This will enable commercial landlords and tenants sufficient time to start any negotiation on that basis with the expectation that a majority of rent arrears will be settled without the need of arbitration.

As to the timescale, in the government published policy statement on 4 August 2021 it says that the new law will be introduced in the current parliamentary session. This means probably by Spring 2022.

Businesses here in the West Midlands should keep a lookout for more announcements from the Government in the coming months.

They should also consider taking advice and assistance at the earliest opportunity so that any rent arrears dispute can be resolved with minimum disruption to ongoing business.

For more on how we can help you, contact James Ng on 0121 2367388 or by email on james.ng@mfgsolicitors.com