Changes to Rent Arbitration

Posted on 16 March, 2022 in Commercial Litigation and Dispute Resolution

Rent Arbitration Following the end of the relevant period for protection from Forfeiture for certain Landlords and Tenants

The relevant period for protection from forfeiture following the Covid pandemic ends on 25 March 2022 however this does not mean that all landlords can use their right to re-enter a property if a tenant has rent arrears that accrued during the pandemic. Rather, certain landlords and tenants must engage in a binding arbitration process first.

The government's intention is that rent debt accrued as a result of the Covid pandemic should not force otherwise viable businesses to cease operating. Accordingly, where a tenant has been unable to pay rent in full due to the impact of forced business closures, they should, in the first instance, negotiate with their landlord. Where the parties are still unable to reach an agreement between themselves, the dispute can be referred to statutory arbitration. The arbitrator will then decide whether the tenant should receive relief from payment which will be to either write off the whole or part of a debt, give time to pay a debt over a maximum period of 24 months and/or reduce any interest payable by a tenant (including to zero).

The arbitration process will only apply to "protected rent debt" and business tenancies. Protected rent debt is rent arrears, service charge arrears, VAT and interest that have accrued during a ring fenced period from 21 March 2020 to the date when specific restrictions were removed for a tenant's relevant sector. So this would be 13 May 2020 for garden centres, 12 April 2021 for non-essential retail and 18 July 2021 for hospitality and nightclubs. The arbitration process will also only apply to tenants who were adversely affected by coronavirus.

Where a landlord and tenant have not reached an agreement in relation to a protected rent debt, they will have a 6 month window to refer the matter to arbitration.

The main stages of the proposed arbitration scheme are as follows:

A landlord or tenant notifies the other party of their intention to apply for arbitration.

The other party then has 14 days to respond.

If a response is:
- received, the party that initiated the process has 14 days to consider the response and reply to it. Either party can then refer the matter to arbitration;
- not received, either party can refer the matter to arbitration after 28 days of the initial letter of notification.

The party that refers the case to arbitration must include a formal proposal for resolving the matter of relief from payment of a protected debt, accompanied by supporting evidence.

The other party may put forward a formal counter-proposal in response within 14 days (subject to any extension by the arbitrator or agreement), accompanied by supporting evidence.

Either party can submit a revised formal proposal within 28 days of their original formal proposal (subject to any extension by the arbitrator or agreement), accompanied by supporting evidence.

The arbitrator can dismiss the case in certain circumstances (such as if there is no protected rent debt) or accept the referral and make an award.
If the arbitrator determines that the tenant's business is viable, or would become viable if provided with relief from payment, they must consider whether to award relief and, if so, what kind of relief.

It is open to either party to request an oral hearing, in which case the arbitrator must make an award within 14 days of the hearing (subject to any extension by the arbitrator or agreement). Otherwise, the arbitrator must make an award as soon as reasonably practicable after the parties have put forward final formal proposals or the time for doing so has expired.

If one formal proposal is consistent with principles of viability and solvency but the other is not, the arbitrator must make the award set out in the proposal that is consistent. If both formal proposals are consistent, the arbitrator must make an award as set out in whichever proposal is most consistent. Where neither formal proposal is consistent, the arbitrator must make such award as they consider appropriate.

If you would like to have a discussion about any of the above, or for further information please get in touch with Raman Dhillon or Jon Wilby of our Commercial Litigation team.