The UK Government has provided some much-needed clarity on what protections will be afforded to businesses, including those in the retail and hospitality industry, once the commercial rent moratoria are scheduled to expire on 30 June 2021.
UK Government confirms extension of protections on commercial rent and for debtors
Earlier this year, the UK Government launched a consultation and call for evidence on commercial rents (read our article here). The consultation was an opportunity for the industry and its stakeholders to voice their concerns and provide suggestions as to what measures should follow the expiration of the commercial rent moratoria on 30 June 2021.
Although official results of the call for evidence are yet to be published, in a press release dated 16 June 2021 (see here), the UK Government has set out some of the next steps and protections for landlords and commercial tenants who are currently in disagreement over commercial rent arrears. We discuss the protections in further detail below.
Enactment of primary legislation to enable ringfencing of rent debt
The UK Government has confirmed that new primary legislation will be enacted to allow for ringfencing of outstanding commercial rent arrears. The legislation will apply to rent which has accrued during periods when the retail and hospitality industry was forced to endure COVID-19 closures. This is a long-awaited relief for commercial tenants, especially as the press release confirms that the Government expects negotiations and that landlords will be expected to 'share the financial impact with theirs tenants'.
However, in order to strike a right balance and also protect those landlords which have suffered financially throughout the pandemic, the Government confirms the caveat that the ringfencing legislation will only apply to those periods where businesses and restaurants were 'impacted by closures'. Therefore, any debt accumulated before the 20 March 2020 and after the date when relevant restrictions ceased will be 'actionable' by landlords.
Extension of commercial rent moratoria
To provide protection to commercial tenants in the industry while the UK Government prepares the ringfencing legislation, the press release has confirmed an extension of the current commercial rent moratoria set to expire on the 30 June 2021. The following extensions will continue to apply to all businesses, including those in the retail and hospitality industries:
These protections will give all businesses much-needed breathing space and the opportunity for landlords and commercial tenants to negotiate calmly before the ringfencing legislation is enacted.
Implementing binding arbitration between landlords and tenants
The press release further confirms that a binding arbitration process will be introduced for landlords and tenants to facilitate the efficient settlement of claims - very much like option 6 of the suggestions provided in the Government's consultation.
The arbitration process will be run by independent, private adjudicators, who will follow guidelines as prescribed in the new legislation. The detailed guidelines will allow for the process to be as fair as possible for both landlords and tenants. Any party wishing to overturn the binding adjudication result will have to spend additional time and costs requesting for the decision to be overturned in court.
Although no set timetable is specified, the new arbitration process will inevitably take quite a few months before it is up and running.
Our thoughts on the new steps
Following the delay of the end of lockdown restrictions from 21 June to earliest 19 July 2021, the Government has received a lot of pressure to provide relief to those in the retail and hospitality industry who will now be unable to operate at full capacity for an even longer period of time. The confirmation of the ringfencing legislation and extension of moratoria are therefore a welcomed step for businesses who would be incapable of clearing all commercial rent arrears before the 30 June 2021.
The information in the press release is rather limited and does require further clarification as to the limitations which will apply to the ringfencing legislation. Initial interpretation of the caveat would mean that the legislation will only apply to periods of time where a business was undergoing fully mandated closures and will not apply to periods where businesses were providing collection and 'take away' only services. Such a caveat would affect a large number of businesses in the industry and so the Government will need to confirm the nuances of this distinction as a matter of urgency.
Publication of the official results of the call for evidence, which are expected in due course, should shed some light on the proposed legislation.
In the meantime, debtors can breathe a temporary sigh of relief and take the Government's actions as a positive indication that intervention is coming and that neither landlords nor tenants will be forced to deal with the repercussions of COVID-19 debt alone.