Introduction of Compulsory Arbitration
As the moratorium on commercial forfeitures for non-payment of rent comes to end on the 25 March 2022, the government look set to pass the Commercial Rent (Coronavirus) Bill and introduce compulsory arbitration for business tenancies.
It is anticipated that the Bill will be enacted shortly, becoming law on 25 March 2022. During the pandemic, significant rent arrears have accrued in the commercial rental sector which are estimated to be in the region of £9 billion. A large proportion of the arrears are attributed to business closures and restrictions occasioned by lockdowns during the pandemic. The main impetus of the Bill is to assist landlords and tenants in resolving any remaining commercial rent disputes by introducing a compulsory and binding arbitration process.
The arbitration process will only apply to business tenancies where there is a protected rent debt. A protected rent debt is:
Rent due under a business tenancy where:
(a) The tenancy was adversely affected by coronavirus (where the tenant’s business or the business premises were subject to closure/lockdown requirements during the pandemic); and
(b) The rent arrears fall within the protected period from 21 March 2020 to 18 July 2021 (in England).
Where agreement cannot be reached as to the payment of arrears between a landlord and a tenant, either party is at liberty to make a reference to arbitration.
Prior to making a reference to arbitration, the parties must notify in writing the other of its intention to make a referral. The party receiving the referral is entitled to submit a response within 14 days of receiving the notification.
A party cannot make a reference to arbitration until 14 days after a response (if any) is received. If a party does not respond to a notification, then the party intending to make the referral cannot do so until 28 days after the date of its initial notification.
A reference to arbitration must be made within 6 months of the Bill being enacted. Whilst the date of enactment is yet to be confirmed, it is anticipated to be passed on 25 March 2022. Assuming this date, any reference therefore would need to be made on or before 25 September 2022. The period for reference to arbitration can be extended by the Secretary of State.
Any award made by an arbitrator is binding upon the parties. It is uncertain as to what awards an arbitrator is likely to make. However, the Bill sets out key principles which an arbitrator must consider when making any award. These include:
(i) Preserving the viability of the business of the tenant so far as such is consistent with the landlord’s business and solvency;
(ii) Whether a tenant can meet its obligations regarding the rent arrears in full and without delay;
(iii) Whether or not any award can be paid by way of instalments. The maximum time a tenant must pay an award is 24 months after the arbitration decision; and
(iv) How the costs and expenses of the arbitration will be paid.
Our specialist property litigation team in Grimsby, Lincoln and Beverley are able to advise you as to strategy regarding whether it is beneficial to make a reference to arbitration as to your particular circumstances, as well as guide you through the process from beginning to end.
For further information on how we can help, please feel free to contact Hannah Loft in Grimsby or Tom Hickingbottom in Lincoln.
Contact Hannah to discuss this further.
