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Thursday 19 May 2022
Published on 7 April 2022, the updated Commercial rent code of practice follows changes made during the COVID-19 pandemic. The purpose of this article is to provide some useful guidance to social housing landlords to navigate the pre-arbitration process outlined in Section 66.
As a result of the lockdown measures introduced in 2020, the Government introduced legislation to protect commercial tenants from eviction for non-payment of rent. As restrictions were eased the protections came to an end on 25 March 2022.
To prevent commercial landlords immediately seeking eviction of non-paying tenants the Government passed the Commercial Rent (Coronavirus) Act 2022 (the Act) which took effect on 24 March 2022.
The Act ring-fenced rent arrears incurred during lockdown. It suspended landlord remedies for such debts for tenants adversely affected by COVID-19 from 21 March 2020 to the last date operating restrictions were removed for the relevant sector. It also established a system of binding arbitration designed to prevent otherwise viable businesses having to cease operating due to rent arrears accrued during lockdown.
The code of practice encourages parties to negotiate agreements for repayment of such arrears where possible. The arbitration process, which can be initiated by either party until 23 September 2022, is a last resort for the parties.
As such a pre-arbitration stage is included in the code of practice in Section 66 and requires a party intending to make an arbitration reference (the applicant) to notify the other party (the respondent) of its intention. The code of practice recommends this is done by letter and is used as a final opportunity to settle the dispute.
The notification should include an offer of settlement supported by appropriate evidence, Annex B of the code of practice gives examples of such evidence including:
Existing and anticipated credit/debit balance
Business performance since March 2020
Expert evidence as to the tenant's current trading position.
The respondent has 14 days to submit a response if they wish to do so. The respondent can accept the offer contained in the notification or submit its own offer, which should be supported by appropriate evidence.
If the respondent does not submit a response, the applicant can make a reference for arbitration on expiry of 28 days after service of its notification. If a response is made a reference for arbitration can be made once 14 days after receipt of the response has expired.
We recommend landlords take the following steps to be ready for any pre-arbitration notifications:
Compile a list of all commercial tenants with no agreements for paying ring-fenced rent arrears.
Consider which tenants are likely to use the arbitration process and attempt to reach agreements with them.
Collate appropriate evidence in line with suggestions in Annex B of the code of practice. Do this now, so it is to hand to issue a response.
Carefully consider the applicant's offer and supporting evidence before accepting the offer or making a counter offer.
John Thompson, Senior Legal Executive, DWF Law