Commercial Rent Arrears – What to do now that arbitration is closed?

Many landlords and tenants have been in conversation for the last couple of years to try and negotiate over rent arrears that may have built up during the enforced closures of commercial business throughout coronavirus lockdowns. For many this has been a long and arduous process. Some will have used the arbitration process that was set up through the Commercial Rent (Coronavirus) Act 2022 that we have previously covered in past blogs including 'Commercial Arrears - Commercial Rent (Coronavirus) Act Part 1 – What is included?'. Hopefully this was successful for all parties involved, but this does pose the question of what does everyone do now if arbitration was not used and a separate agreement could not be reached.

 

The Commercial Rent (Coronavirus) Act 2022 gave protections to tenants who had fallen into arrears during this protected period. During the moratorium period (which ended on 24 September 2022), landlords could not take any enforcement action against the tenant relating to protected arrears. This would have included the following mechanisms:

•  Making a debt claim in civil proceedings.
•  Using the commercial rent arrears recovery power.
•  Enforcing a right of re-entry or forfeiture.
•  Using a tenant’s deposit.

 

Now that the moratorium has expired and to date has not been extended by the government, the restrictions to the enforcement measures above is no longer in place and the arbitration scheme is no longer available.

 

Landlords therefore can now pursue the protected debts as they wish including serving statutory demands. Equally, we know following the decision in London Trocadero (2015) LLP v Picturehouse Cinemas Ltd which we looked at in more detail here: Another win for Landlords with Covid rent arrears this time in Court of Appeal: London Trocadero (2015) LLP v Picturehouse Cinemas Ltd that Covid is not going to be an automatic defence just because it affected a particular industry more than others. The arbitration scheme was designed to assist tenants and to consider these sorts of issues. If the tenant has not made a referral for arbitration already, they have lost their ability to do so.

 

Landlords do need to consider the commercial impact of any such proceedings though. The old phrase of ‘just because you can, doesn’t mean you should’ comes to mind. Landlords will need to weigh up the effects of any action on the tenant. For example, forfeiting the tenancy may mean you have possession of the property back but if you cannot re-let the property quickly or at the same rate then it may be better to keep the tenant in the property and continue to negotiate, maybe with a little more leverage than you previously had.

 

The Landlord therefore has a lot more options available to them. Careful planning, cost benefit analysis and legal advice will be crucial to this. If you do find yourself in a position where enforcement action is required or even contemplated, then any new enquiries can be sent through to [email protected] and we can provide a quote.