The clock is ticking on Covid Rent Arrears
Legal Development 21 July 2022 21 July 2022
UK & Europe
UK Real Estate Insights
The Commercial Rent (Coronavirus) Act came into force on 25 March 2022 and is due to end on 23rd September 2022 which is approximately 2 months today; the countdown begins although it is perfectly within the Government’s ambit to extend.
The Act provides for liability for protected Rent Arrears debt to be resolved by way of a binding arbitration. In a nutshell, the process begins with a referral to arbitration with the referring party making a proposal as to how the debt should be dealt with. The other party has the opportunity to give a counter proposal and if they do so, and dispute remains, the matter can be referred for arbitration – either on paper or (if parties are prepared to pay) for a hearing.
Awards are starting to be published.
First Published Award
In the first published award under the arbitration scheme, H Samuel sought relief against their landlord’s claim for £450,000 rental arrears that related to their head office space.
The Arbitrator, a practicing barrister from a leading Property Chambers, found that the Act had no application to office space because there was no regulation requiring office space to be closed – even though the retailers’ retail stores were required, by law, to be closed.
The Arbitrator highlighted that there was nothing in the legislation or regulations that should differentiate office space occupied by retailers, as opposed to other types of office user.
As such, the Arbitrator found that the arrears were not protected debt, and they had no jurisdiction to deal with the matter.
A Few Observations:
- The decision was undoubtedly correct – offices were never required to be closed during the pandemic period. Of course, many people did, in reality, stay away but skeleton staff were often present – as was the case for H Samuel.
- The Arbitrator allowed themselves a good deal of flexibility as regards procedural and evidential matters – even going so far as to deal with the matter of the office closure as a preliminary issue – saving the parties a good deal of wasted costs of arguing points that never needed to be decided.
- In another reported case, an Arbitrator was forced to make another preliminary award regarding whether the parties had properly followed the process laid down in regulations and the Arbitrators directions. It is interesting that the first two awards published centre around procedural and jurisdictional matters – but possibly unsurprising given that this is an entirely novel process.
- Once preliminary matters are resolved, the exercise that Arbitrators under the scheme are required to undertake remains a daunting one. It may be that Arbitrators will feel more comfortable dealing with these referrals if they continue to be allowed the same procedural and evidential flexibility shown by the Arbitrator in this case.
- If there are lessons for parties who have not yet referred a debt case for Arbitration, key among them are:
- Do not delay – there is no guarantee that the Government will extend the deadline for referring matters to arbitration
- Follow the rules – procedural errors may lead to matters being dealt with summarily or potentially costly sideshow.