Business

Commercial landlords and tenants to share the cost of rent debt

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Jill Annett

COMMERCIAL landlords and tenants will be familiar with the existing legislation which protects commercial tenants from eviction until March 25 next year.

This provides breathing space to commercial tenants adversely affected by the Covid pandemic, allowing time for the landlord and tenant to negotiate and potentially share the costs of commercial rent debts caused by the pandemic.

Earlier this month, the UK Government published a new code of practice for commercial property relationships following the pandemic. It is applicable in England, Wales and Northern Ireland and replaces earlier codes on this issue.

Negotiations between landlord and commercial tenant are underpinned by the new code which focuses on preserving viable businesses and commercial tenants providing greater transparency in relation to affordability concessions.

It provides a framework to balance the interests of landlords and commercial tenants, with the aim of preventing otherwise viable businesses from ceasing to operate as a result of commercial rent debt caused by the pandemic.

Essentially, where affordable, a commercial tenant should aim to meet their contractual obligations but should not be forced to take on more debt or restructure their business to pay their rent. It is also expected that a landlord would waive some or all rent arrears where able to do so.

A Commercial Rent (Coronavirus) Bill was also introduced into Parliament on November 9. Once passed it will apply in England and Wales when the existing protection expires next March. The Northern Ireland Executive will have power to make similar legislation.

Whilst the code underpins the entirety of the landlord – commercial tenant relationship, this new legislation will apply only to commercial rent debts related to the mandated closure of certain businesses such as pubs, gyms, particular retail and restaurants during the pandemic.

For these ring fenced debts, it will remove previously used remedies such as suing for arrears and creditor initiated winding up proceedings and instead aims to create a speedy and streamlined process for determining such debts within one procedural domain by providing for a legally binding arbitration process. Non ring-fenced rent arrears will be subject to ordinary enforcement measures post March 2022.

Whilst for landlords the existing legislation may be frustrating, with non-paying commercial tenants in situ and a prohibition on eviction in place, it is hoped that the new Code and the Bill (if enacted) will provide a speedy and proportionate way of dealing with pandemic related arrears.

Pain may have to be shared between landlords and commercial tenants, but the ultimate goal is the swift recovery of the market and that must be in everyone's interest.

:: Jill Annett (jill.annett@mckees-law.com) is a senior associate in McKees (www.mckees-law.com) specialising in commercial disputes

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Business