New “Commercial Rent Code for Practice following COVID-19”

Those forced to close their businesses during the pandemic and are yet to resolve their commercial rent arrear disputes, may find use in new legislation to aid the resolution of their disputes.

The enactment of the Commercial Rent (Coronavirus) Act 2022 (the CRCA) has given rise to a new arbitration scheme provides a mechanism for landlords and tenants to refer their rent arear disputes, that accrued during the pandemic, to an arbitrator.

In addition to the new arbitration scheme, a new Code of Practice was published by the Government on 7 April 2022 (the New Code). The purpose of the New Code aims to provide clarity on how the CRCA will work in practice for landlords and tenants who are in a dispute over unpaid commercial rent arears, service charge and other rents (such as insurance rent) that accrued during a ringfenced period starting from 21 March 2020 until 18 July 2021.

Annex A of the New Code provides a summary of the ringfenced period which can be found here.

The New Code replaced an earlier, out of date, version published back in November 2021. It is said to provide guidance which can be used by parties in a dispute, whether through the new arbitration scheme or not, in order to “…facilitate constructive dialogue…”.

The New Code further supports the CRCA’s new scheme by providing recommendations and statutory guidance on the three key stages of the scheme:

Stage 1 – Statutory guidance on making a reference to arbitration at the pre-arbitration stage

This primary stage embodies the general theme of the New Code, in that all parties to a dispute are encouraged to negotiate, by imposing a 28 day pre-arbitration process prior to an application for arbitration under the new scheme.

Where Stage 1 has been complied with, with no sign of resolution on expiry of the 28-day period, either party may make a reference to arbitration requesting the appointment of an arbitrator.

Stage 2 – Arbitrator’s determination of eligibility (inc. viability of the tenant’s business)

Once an arbitrator is appointed, the arbitrator must determine whether the dispute is eligible for arbitration.

Eligibility:

The following must be satisfied to ensure a reference to arbitration will be deemed as eligible:

1. 1. The tenancy to which the dispute relates must be a business tenancy
   2. The debt accrued must be deemed a ‘protected rent debt” (See above regarding the ringfenced period as further explained in Annex A of the New Code)
   3. The parties’ have not yet resolved the dispute
   4. The tenant’s business, at the date of the assessment, must be viable.

It is important to note, that in the event the arbitrator is not satisfied that the dispute meets the eligibility criteria, the application for arbitration will be dismissed.

Where a referral has not been dismissed at Stage 2, the arbitration will progress to Stage 3.

Stage 3 – Consideration of proposals for resolving the dispute over protected rent debt

It is at the stage that the arbitration procedure begins. Stages 1 and 2 are concerned namely with pre-arbitration and/or administrative requirements.

The primary objective at Stage 3 is the determination of whether the tenant should be given relief from payment of the protected rent debt, and if so, to what extent.

Any relief will be decided by the arbitrator once they have considered all responses and evidence submitted by the parties as part of their formal application. A hearing may or may not take place. The arbitrator’s award is final and binding but does not affect the tenant’s right to challenge.

It is worth noting that in the event a party makes an application for arbitration under the CRCA, then any negotiation, as encouraged under the New Code, may continue to run alongside such application.

Contact our Real Estate Dispute Resolution team

Whilst the deadline for landlords and tenants to make a reference to arbitration, pursuant to the new scheme, expired on 23 September 2022, please do not hesitate to contact a member of the Real Estate Dispute Resolution Team if you would like to discuss an on-going landlord dispute or any enquiries relating to this blog.

The Real Estate Dispute Resolution Team can be contacted on 01895 201759 or via the enquiry form at the top of our Property Disputes page.