(UK) Rent Arbitration – A Useful or Useless Tool?
Often with new legislation, we might introduce it with words such as ‘much anticipated’ or ‘welcome’, but the Commercial Rent (Coronavirus) Act 2022 is for many landlords and tenants, too late, or unnecessary, because deals have already been done in respect of unpaid COVID commercial rent payments.
The Act came into force on 24 March 2022 and provides a mechanism that allows either a landlord or a tenant to apply to an arbitrator to determine what should happen in relation to unpaid commercial rent that accrued during the pandemic when restrictions were in place that prevented businesses from opening.
The new process does have a bit of a sting in its tail, given that it will require the arbitrator to determine whether the tenant company is viable and therefore whether to make an award (that might include a waiver of rent or payment plan). If the arbitrator finds that the tenant company is not viable, or, that an award would impact a landlord’s solvency, for both parties this puts them into difficult waters, having to potentially navigate wrongful trading risks. The draft guidance to arbitrators sets out more detail about the arbitrators approach to this.
However on the whole we do not expect the new process to be used by many – for one thing the costs might make the option non-commercial, and the existing Code of Practice already helps guide landlords and tenants. For a more detailed note on the workings of the process, please see our updated alert.
One of the limiting factors of the new regime is that although the moratorium on commercial COVID rent debt lasts for 6 months, if rent debts are compromised under the new regime this restricts a company’s ability to propose a company voluntary arrangement (CVA), restructuring plan or scheme for 1 year in respect of the same debt, potentially hampering a company’s rescue. Hopefully this restriction will not be to the detriment of many, but it may impact some, particularly given that we are likely to see an uptick in CVAs given the current economic climate.