What happens with commercial tenant debts after March 2022?

The harsh economic effects of Covid-19 led to many businesses accruing commercial rent arrears. With entire sectors having to close down, the government had to step in with protective measures that prevented mass evictions and legal actions.

After 25th March 2022, these protections come to an end, however, and will be replaced with new laws and procedures. These are intended to help commercial landlords and tenants deal with rent arrears created as a result of the pandemic.

So what changes will take place after March 2022?

• The right of forfeiture will be returned to commercial landlords, leaving businesses with the possibility of being evicted
• Commercial Rent Arrears Recovery (CRAR) was restricted during the pandemic, but the power to use CRAR returns to commercial landlords after 25th March 2022
• The moratorium on statutory demands and winding up petitions for pandemic-related debts ends on 31st March 2022, leaving commercial tenants at risk of these forms of legal action being taken by their landlord

What happens after March 2022 with regard to commercial tenant debts?

Ringfencing of commercial rent arrears

New laws brought in under the Commercial Rent (Coronavirus) Bill mean that arrears accrued due to enforced closure of businesses during the pandemic, including gyms, pubs, and nightclubs, can be ringfenced.

A new Code of Practice

Under the new Code of Practice, commercial landlords are expected to waive some or all of the ringfenced debts where they can, and negotiate with a view to sharing the cost of pandemic-related debts with their tenant.

Legally binding arbitration for commercial tenant debts

A new, legally binding arbitration system comes into force from 25th March 2022, for cases where agreement cannot be reached using the Code of Practice. The arbitration system may encourage resolution and minimise the number of ongoing commercial rent disputes. Those acting as arbitrators in the scheme must be approved prior to carrying out the role, so their impartiality can be relied upon during this process.

The new arbitration scheme for commercial rent arrears

The Commercial Rent (Coronavirus) Bill states that rent arrears include service charges, interest, insurance, and VAT. Once the Bill becomes law, commercial landlords and tenants have six months to refer their case to the scheme.

This is done in writing and must be accompanied by a formal proposal for resolving the matter. The other party then submits their own proposal within 14 days, and within 28 days both parties can submit revised proposals.

It’s important for landlords and tenants to seek professional advice when making a proposal to the arbitration scheme. Proposals need to be detailed, and supported by appropriate documentary evidence.

There can be various outcomes from arbitration, including repaying the arrears via an instalment plan of up to 24 months, and reducing the amount payable. Any payment plan emerging from arbitration is legally binding for both parties.

It’s worth noting that there will be no special measures to help businesses with rent debts that existed before March 2020, nor those that accrued after the mandate to remain closed was lifted.

Obtaining professional support prior to arbitration

Landlords and commercial tenants should consider obtaining professional help at an early stage if entering arbitration might be a possibility. UK Liquidators are insolvency specialists and can offer reliable unbiased support.

We can advise on making a proposal, and the documentary evidence required to present a strong case. Please get in touch with our partner-led team to find out more – we offer free, same-day consultations and operate an extensive network of local offices throughout the UK.