Arbitration system for commercial rent arrears on its way

05 Aug 2021

The government will legislate to ringfence rent debt accrued from March 2020 for tenants who have been forced to close as a result of Covid-19 business measures until trading restrictions are removed.

This week the government published its policy statement in response to the recent call for evidence on the issue of commercial rent arrears ( Legislation is expected in the current Parliamentary session.
It announces the introduction of a system of binding arbitration to be undertaken where agreement between commercial landlords and tenants cannot be reached. Whilst the scheme is intended to be introduced in the next few months, the details of the process and how it works are not yet available; they will be released “in due course”.
Ahead of this system being in place, the government intends to publish a revised Code of Practice setting out the principles they expect landlords and tenants to adhere to when trying to settle their differences.

These measures have been announced against the continuing backdrop of other support for indebted tenants which the government has previously put in place by:
  • extending the current protections for commercial tenants against eviction to 25 March 2022
  • extending to 25 March 2022 the restriction on the use of the Commercial Rent Arrears Recovery (CRAR), which restricts the ability of landlords to seize goods owned by the tenant in lieu of rent owed unless the tenant has more than 554 days’ worth of rent arrears
  • extending the restrictions against serving a winding up petition on the basis of a statutory demand until 30 September 2021
The aim is clear - to provide a bigger breathing space for commercial tenants whose businesses have been closed during the pandemic. Whether the desire for landlords and tenants to work together to find a solution to the debt is realistic in all cases is less clear. Undoubtedly some landlord-tenant relationships have been stretched to near breaking point during the last 16 months; let’s hope the planned arbitration regime offers a real solution for parties on both sides of the fence.

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