New plan to help businesses in £9 billion rent arrears could be in place by March - which businesses will benefit?
A binding arbitration process will be launched under the Commercial Rent (Coronavirus) Bill, to quickly resolve disputes.
Rent arrears could total £9 billion by March—when some temporary measures to help businesses expire—according to Treasury estimates. While some businesses may have had business interruption insurance, many are finding coronavirus isn’t necessarily covered.
The government had blocked the use of forfeiture, commercial rent arrears recovery (CRAR) and winding up petitions during the coronavirus pandemic, but this is due to end at the end of March.
All businesses that lease their premises in England and Wales that have fallen behind on their rent will benefit from the process. It sets out timescales for when rent cannot be charged due to businesses being forced to close under lockdown rules. Known as protected rent debt, it covers rent that fell between March 21 2020 and July 18 2021 in England or August 7 in Wales. Non-essential shops may not qualify for the entire timescale as they were allowed to re-open earlier than hospitality.
Pubs, bars and restaurants are among those struggling most with rental debt so will benefit greatly. But offices that closed due to work from home guidance will not qualify as this was only guidance rather than the law.
While the new scheme comes as some relief to businesses, it will launch around the same time as the 1.25% hike in National Insurance.
Shadow business minister Seema Malhotra said: "It is critical that any arbitration system that is created is also administered within the context of a wider supportive environment for businesses."
Speaking in the House of Commons on January 12 when the Bill was passed by MPs, Business Minister Paul Scully said: "The outstanding commercial rent debt still poses a significant threat to both commercial tenants and landlords in England and Wales.
"I welcome the recognition from both sides of the House for the need for this Bill."
The Bill still needs to be scrutinised and passed through the House of Lords at a later date. Once in force the ban of forfeiture, winding up, CRAR and using rent deposits to pay for debt will again be blocked for another six months, giving businesses time to use the new arbitration scheme to come to an agreement with their landlords.
As part of its help and guidance for businesses during the Covid-19 pandemic, the government set up a code of practice for commerical property relationships between landlords and tenants.
The government says: “The code can be used by any business to help them negotiate and resolve rent disputes even if they fall outside of scope for arbitration, further details of this scope can be found within the code.
“Many landlords and tenants are working well together to reach agreements in respect of rent debts resulting from the pandemic; however, some landlords have pursued remedies such as County Court or High Court Judgements.”