A number of commercial Landlords and Tenants will currently still be in discussions regarding arrears that have built up during the pandemic. These ‘discussions’ may be at various stages, from a promise to address at a later date once the business is becoming profitable again up to judgment having been obtained by the Landlord and enforcement action being considered. The new process will encompass the majority of these situations and so before any action is taken or continued regarding these arrears, both Landlord and Tenant should make sure they are aware as to what actions they are authorised to make and what rights they have over that debt.
We will be putting out a series of blogs covering this new procedure. The first will be on the basics of what type of situation falls within the scope of the Act.
The Act currently covers business tenancies that were forced to close due to coronavirus restrictions and as a result fell into arrears and it commenced on 25th March 2022. However, unfortunately it is not quite that simple. A number of businesses were allowed to open before others with a staggered reducing of restrictions meaning that these specific circumstances need to be accounted for.
Firstly we will look at the tenancies that are included and the rent that will be covered under the Act. Business Tenancies under the Act will use the definition as set out in Part II Landlord and Tenant Act 1954. This will mean that the tenancy will fall under the scope of the Act if:
‘Subject to the provisions of this Act, this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.’
Rent under the Act is defined in Section 2 which sets out as follows:
‘(1) “Rent”, in relation to a business tenancy, means an amount consisting of one or more of the following:
(a) an amount payable by the tenant to the landlord under the tenancy for possession and use of the premises comprised in the tenancy (whether described as rent or otherwise);
(b) an amount payable by the tenant to the landlord under the tenancy as a service charge;
(c) interest on an unpaid amount within paragraph (a) or (b).’
It is therefore a wide definition of what is included as rent and not necessarily just as rent is defined under the lease but like with the business tenancy definition above, this part is likely to be as expected.
Where the nuance starts is in relation to the ‘Relevant Period’ that the arrears built up during. The arbitration process is designed to address the rent arrears incurred solely as a result of imposed closures. The ‘Relevant Period’ therefore can be anytime between 2pm on 21 March 2020 when the restrictions began and 11.55pm on 18 July 2021 when all restrictions were lifted, that the specific business was subject to a closure order.
The current reading of the Act is that in order to meet this ‘Closure Order’ requirement, it not sufficient to have just closed due to financial decision (i.e. the obligations for opening would make it not financially worthwhile to remain open) or individual health considerations (being told to isolate as this would be an individual instruction rather than one given to the business). Section 4(3) of the Act covers this point and reads as follows:
‘(3) A requirement expressed as an obligation to close businesses or premises of a specified description, or parts of businesses or premises of a specified description, every day at particular times is to be regarded for the purposes of subsection (2)(a) as a closure requirement.’
If the situation that you find yourself in falls within the criteria above, it is likely that the adjudication process will be required unless agreement can be reached without the need.
In the next blog we will be covering what the arbitration process is likely to look like and what applications will likely be determined on.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.