The Commercial Rent (Coronavirus) Act 2022 was passed on 24 March 2022 and has now come into force.
CR(C)A 2022 overrides the contractual entitlement to certain rent under commercial tenancies where the business or premises were required to close because of Coronavirus restrictions. It does this by ringfencing rent arrears that accrued during a ‘protected period’ and allowing the liability for this ‘protected rent’ to be referred to arbitration. There is only a limited period of six months to begin an arbitration, although this may be extended by regulations. A reference to arbitration must be preceded by notice to the other party, so that in practice there is only around five months in which to actually start the process.
Parties will be required to submit their formal proposals to the arbitrator, which are likely to require significant evidence in support. The arbitrator will then consider whether the dispute is eligible for arbitration and decide on the outcome, either on paper or at a public hearing. Arbitrators then have power to reduce or defer payment of the protected rent, and landlords may not enforce against tenants (or guarantors or former tenants) for this debt while the arbitration process is followed. This process does not apply to rent arrears for period where the business was not forced to close under Coronavirus restrictions. There remains uncertainty about the detail of the arbitration process and, given the restricted period covered, cost of arbitration and privacy issues, it is unclear how popular the scheme might actually be.
The wider moratorium on rent recovery is now ending in England. Commercial landlords are now at liberty to forfeit, use CRAR, or issue winding up petitions for rent arrears which are not protected. With regards to arrears during the protected period parties are still encouraged to negotiate and make use of other forms of ADR, before resorting to arbitration.
To discuss the implications of this ruling contact Property Dispute Resolution Partner Claire-Elaine Arthurs