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New law as general moratorium on commercial rent arrears ended

Many commercial landlords, who are owed rent arrears, will breathe a sigh of relief after a general moratorium on commercial evictions in England and Wales ended on 25 March.

The moratorium on the Commercial Rent Arrears Recovery (CRAR) rules, was introduced in 2020 as a temporary measure as the country was locked down by the COVID-19 pandemic. It was extended on 16 June 2021.

The Government has now introduced new legislation, the “Commercial Rent (Coronavirus) Act 2022” to help landlords and tenants resolve commercial rent debts incurred during the pandemic and where agreement over payment of the rent arrears has not been possible. It is hoped this new legislation will assist in settling disputes about certain pandemic-related rent debt and help the market return to normal as quickly as possible.

The new law came into effect on 24 March 2022.

How does the new law work?

The new law ringfences any rent and service charge debt accrued in a period where a business was required to fully or partially close under the coronavirus regulations and/or were subject to restrictions when open. It establishes a statutory arbitration process under which debts may be reduced or payment deferred.

A moratorium on landlords taking enforcement action is also imposed, solely for ringfenced rent known as a ‘protected debt’ to protect tenants while arbitration takes place. The moratorium will run for six months until 24/9/2022 or the day on which arbitration concludes. A referral can be made by either party.

Rental arrears that have accrued at other times will not fall within the scope of a protected debt and so in England, landlords are free to take enforcement action where on these arrears. Wales face a further moratorium.

What was the purpose of the moratorium?

The moratorium was part of Government measures designed to provide firms with breathing space to negotiate how to address the cost of commercial rent debts caused by the pandemic.

The main objective in doing so was to protect jobs, by allowing businesses to continue to trade while struggling to pay their rent, while at the same time, encouraging landlords and tenants to resolve debt issues through negotiation or arbitration.

Business Minister Paul Scully said: “Landlords and tenants should keep working together to reach their own agreements where possible using our Code of Practice to help them, and we’ve made arbitration available as a last resort. Tenants who can repay their rent debts in full, should do so, and when they cannot, landlords should try to share the burden, so we can all move on.”

Clear process for settling rent arrears

Last year, the government published an updated Code of Practice to provide commercial landlords and tenants with a clear process for settling outstanding debts.

The Code sets out that tenants who can pay their rent debt in full should do so, and that in the first instance, tenants unable to pay in full should negotiate with their landlord in the expectation that the landlord shares the burden where they can do so, and only as far as necessary, by waiving some or all rent arrears or giving time to pay.

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