Is binding arbitration the long-term solution to Covid 19 rent arrears? – A further update on the position.

On 9 November 2021 the Government announced the details of its awaited Code of Practice in relation to outstanding rent arrears caused by the COVID-19 pandemic. The Code of Practice for Commercial Property Relationships following the Covid-19 Pandemic is accompanied by The Commercial Rent (Coronavirus) Bill and will come into force from 25 March 2022.

As set out in our previous articles, the Government have always stated that their aim is to ensure that COVID-19 should not force an otherwise viable business to cease operating.  Accordingly, they have consistently encouraged landlords and tenants to negotiate a settlement in relation to arrears for the period from 21 March 2020 to the last date restrictions applied to the business tenant's sector. The Code of Practice and the Bill are consistent with this, continuing to encourage collaboration but bringing in a binding arbitration process as a last resort for landlords and tenants who have not been able to reach agreement through negotiation.

The headline points are:

  • Either party will have a period of 6 months following implementation to apply for arbitration.
  • In order to request arbitration a pre-application process must have been followed which will include one party submitting to the other their proposal for the protected rent debt and the other side providing its counteroffer.
  • The arbitrator will then invite both parties to provide their submissions, allowing them a further opportunity to submit best/final proposals prior to a hearing.
  • It is for the parties to decide if they want a public hearing, or for the arbitrator to make a decision on the documents. The bill sets out the awards an arbitrator can make.
  • If a hearing is requested it is to take place within two weeks of the request being made,

Whilst there are further questions to be answered, this announcement will be of particular interest to impacted commercial tenants given the short shrift the Courts have so far given to the defences made by tenants to justify the non-payment of rental arrears (albeit that at least two cases are subject to the right to appeal).

It has also been confirmed that the moratorium on forfeiture and CRAR will remain in place until 25 March 2022. Whilst most arrears cases have now been settled by the parties directly, the focus of the Government is clearly still to encourage further negotiation and resolution. It is encouraging that a scheme has now been put in place to provide an effective end date for disputes which cannot be resolved directly.

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