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Dispute Resolution
Monday 28th February 2022 Danielle Cohen  Irina Apekisheva 

The protected rent debt – how does this affect landlords and tenants?

Businesses have suffered enormous losses during the last two years due to government lockdowns and forced business closures. To protect tenants, in particular, in the nightclub, leisure and hospitality sector, the Government imposed a moratorium on forfeiture, service of statutory demands and winding up petitions.

‘Protected rent’ is any unpaid rent, service charge or insurance payments falling due within the period of 21 March 2020 to 18 July 2021 due to forced business closure. It does not cover those businesses who were affected in other ways by the pandemic.

The Government has introduced the Commercial Rent (Coronavirus) Bill to deal with these rent arrears and it is due to receive Royal Assent on 25 March 2022.

Coronavirus Bill

The aim of the bill is to assist the resolution of landlord and tenants where there is a protected rent debt. The scheme is available until 25 September 2022.

The bill provides a legally binding framework for a new arbitration scheme. The scheme gives the arbitrator the power to write off in whole or part any related rent arrears due to the pandemic. The arbitrator’s role is to seek a fine balance between the viability of the tenant’s business and the Landlord, as to how much of the protected debt is payable.

There has been a lot of criticism towards the bill, in particular, the enormous case load the arbitrators are tasked to deal with in a very short space of time (six months).

Proposed amendments

The bill is shortly entering the final stages of its parliamentary journey. Following the Committee Stage at the House of Lords, several amendments have been proposed. The most significant ones are the following:

1. Under the ‘Approval of Arbitration Bodies’ clause, it is proposed that the Secretary of State ensures that the approved arbitration bodies behave sufficient capacity/resources – specifically, the adequate numbers of arbitrators, to hear the arbitrations under the Bill.

2. If a relief is granted to a tenant as a result of the arbitration, any former tenant or guarantor should only be required the sum required by the arbitrator’s award.

3. Guidance should be issued to the arbitrators in respect of the assessment of viability and the timescales for doing so.

4. Four months after the date the proposed Bill is passed, the Secretary of State must publish a review on the impact and effectiveness of the Act.

5. Any moratoriums on the enforcement of protected rent debts would apply to another person liable for rent, for example a former tenant.

6. Provision of a cap on the level of I recoverable interest on protected debts

    The proposed amendments, if ultimately incorporated, provide some further relief and reassurance to guarantors and former tenants as it allows them to take advantage of the new legislation.

    It is, however, likely, that the assessment of viability of a business will be a contentious point, not least because there is no definition of ‘viability in the proposed Bill.

    Overall, it remains to be seen whether the massive backlog of the rents can be dealt with effectively and within a reasonable timeframe.

    For more information, please contact Danielle Cohen by email on dcohen@jpclaw.co.uk by telephone 020 7644 7264 or connect with her on LinkedIn, or Irina Apekisheva by email on iapekisheva@jpclaw.co.uk or by telephone on 020 7644 7283 or connect with her on LinkedIn.

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