Commercial landlords and tenant should take note of the Commercial Rent (Coronavirus) Act 2022 which is expected to become law by 25 March 2022. Part 2 of the Act will cover the situation if a landlord or tenant would like to refer a protected debt to the new arbitration scheme.
The scheme will apply to relevant premises based in England and Wales who have been negatively impacted by the Covid19 restrictions forcing them to close part, or all their business premises. Only protected debts will be covered by the scheme.
A referral for arbitration can be made by either the landlord or tenant during the 6-month period beginning from the date when the legislation comes into force. The Government will set up a register of arbitrators for the scheme.
To commence the procedure, either the landlord or tenant must send a letter of notification to the other party communicating their initial settlement offer. A response or counteroffer should be provided within 14 days and an additional 14 days should be granted to allow time to consider the offer.
The arbitrator will be empowered to dismiss a referral or award relief from payment. The types of relief include having part, or all the outstanding debt written off. Proving further time to pay the debt or reducing the interest payable on the debt. The maximum period an applicant will be allowed to pay instalments will be 24 months.
Draft guidance
The Government has published a draft guidance for arbitrators.
On appointment the arbitrators first responsibility is to determine if the dispute is suitable for arbitration. The arbitrator must consider the solvency of the landlord and tenants’ business if the party is given relief from payment. The arbitrator can demand the tenant provide the necessary information to consider the tenants solvency. If arbitration is suitable any proposal suggested by either of the parties must first be considered. The arbitrator must then decide on an appropriate award within a reasonable period. Both parties will have the right to request a hearing. Once a decision by the arbitrator has been made it is legally binding on both parties but there will be a right of appeal. The grounds of appeal will be limited. The scheme does not give the arbitrator any powers to enforce their decision. Any enforcement matter will therefore have to be enforced by the courts should a tenant not comply with the arbitrator’s decision.
The scheme will affect the tenant in relation to their own potential insolvency situation. A tenant will not be able to propose an individual voluntary arrangement or company voluntary arrangement that will affect a protected debt under this scheme. This will apply to the period covering the time the referral was made until 12 months after the arbitrator decision.
There will be a cost in relation to the scheme. The fees will be regulated by the relevant arbitration body. The cost is expected to be decided by the Secretary of State. On the issue of costs, the arbitrators will have the power to make an award against the other party to the arbitration. This will be expected to be up 50% of the arbitration fees. Where a party has been obstructive, the arbitrator will have the power to make the obstructing party to potentially be liable to pay all the arbitration fees. Generally, both parties will be responsible for their own legal costs.
This article is only for guidance. Should you require further advice please call the Quest advice line for further help on 01455 852028.
