New Coronavirus Debt Legislation – Part 1 – What is Changing?

Yesterday the Government published a new Code of Conduct for landlords and tenants relating to Coronavirus rent debt alongside the draft Commercial Rent (Coronavirus) Bill. The principal purpose of the Code and Bill are to establish the long-promised arbitration mechanism for dealing with unpaid tenant rent debt incurred during the pandemic. In this Part 1 – we look at the important immediate implications for landlords and tenant. In Part 2 – we will look at the proposed arbitration process in more detail and in Part 3 we will examine some of the unanswered questions arising. Of course, the Bill is subject to change, but we understand that the Government is looking to get this through Parliament swiftly. We will provide a further update if there are any changes when the Bill is passed into law.

What tenancy does these new provisions apply to?

The apparent intention behind the Bill is that the provisions will apply to:

• Business Tenancies – which although unclear probably is intended to refer to a tenancy of any premises which is occupied for the purposes of a business
• And where the premises were required by regulations to be closed due to the pandemic

It will seemingly not apply to any period of time where a tenant voluntarily closed.

It is also the seeming intention that any limited exceptions to closure (for example, a restaurant offering take away as opposed to sit down service) will be ignored and it will instead be assumed that the business was required to be closed.

What are the immediate implications?

The Bill targets rent, service charges (including insurance costs) and interest on the same that relates to the period 21 March 2020 – 18 July 2021 (or 7 August 2021 for Wales) (called the “Protected Period”)

After the Bill passes into law, a landlord will not be able to:

• exercise CRAR
• issue a claim for debt
• issue a winding up petition/ bankruptcy petition
• seek to forfeit a lease

on the grounds of the existence of such ringfenced debt relating to the Protected Period.

Readers will be familiar with the existing moratorium lasting until 22 March 2022 however the Bill introduces a further moratorium period which will run from the date of the coming into force of the Act until:

1. If no party applies for an Arbitration, the date 6 months after the date of the Act, or:
2. If a party has applied for an Arbitration, the date when that Arbitration is either abandoned or concluded.

But the Bill goes further:

• Any court claim for debt issued after 10 November 2021 can be stayed on application by any party to the extent that it relates to debt relating to the Protected Period (in reality a further retrospective extended moratorium)
• Any judgments obtained on or after 10 November 2021 cannot be enforced to the extent that it relates to debt relating to the Protected Period (again a further retrospective extended moratorium)
• During the moratorium period, a landlord may not apply rent paid to debt relating to the Protected Period or draw down on a rent deposit to apply to debt relating to the Protected Period and if the landlord has already done so, the tenant is not obliged to top up that rent deposit during the moratorium.

Already, this indicates the direction of travel where landlords interests are being relegated in favour of tenants.

As we will see in Part 2 – the Arbitration process also appears to weigh heavily in favour of tenants.