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02 December 2021

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Commercial rents – some basis for agreement perhaps lies ahead
Adrian Leopard 111

Commercial rents – some basis for agreement perhaps lies ahead

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New code of practice followed by enforced adjudication looks like the government’s way ahead. Don’t forget mediation though!

The pandemic in bringing about the closure of businesses, notably in the hospitality industry, created a new crisis because of the need for businesses to continue to pay their rents. Many could not.

Not everyone is a bad guy and many landlords have negotiated with their tenants and granted rent free periods, rent reductions, rent payable on a proportionate basis with trade and so forth and there is no doubt that such arrangements represent a sensible approach into spreading the load.

Not all landlords however have agreed with that approach and they want their rents paid. In order to prevent large numbers of repossessions, the government introduced a moratorium which prevented tenants from being evicted for non-payment of rent. Indeed other forms of enforcement have also been outlawed on a temporary basis which has now been extended until March 2022. At that point, everyone has been worried that a deluge of action could be implemented.

Today however, that possibility has been tackled by the government introducing a new code of practice which comes into force today to help landlords and tenants agree. The code can be found here:

https://www.gov.uk/government/publications/commercial-rents-code-of-practice-november-2021/code-of-practice-for-commercial-property-relationships-following-the-covid-19-pandemic

However what the code does not do is to attempt to change the underlying contractual obligations of the parties so covenants remain enforceable and rent remains due. The code will probably be helpful but if you are a tenant you should expect that you may still have to pay your rent in full eventually.

As things move on we shall reach the end of the present moratorium and then a new legal framework is expected to be in place in the form of the Commercial Rent (Coronavirus) Act, the Bill for which is being published today. This new law is expected to come into force when the moratorium ends next March and in particular will provide for compulsory binding arbitration in England and Wales with the power for Northern Ireland to introduce its own legislation. You can find a link to the bill itself here:

https://bills.parliament.uk/bills/3064

However, the thrust of it is that either party, landlord or tenant, can make an application for arbitration and to do so must prepare a proposal. An alternative proposal can be made by the other side and of course negotiations can proceed in the background with a view to achieving agreement. What this looks like is, to take an example, a tenant could make a proposal for a reduced rent, or perhaps a longer period to pay, or whatever and the arbitrator ultimately must decide whether the proposal or any parts of it should be allowed to be enforced and the arbitrator under the act will have power to reduce rent, but the decision making process is to have the solvency of both parties in mind and in particular make a decision as to whether allowing a tenancy to continue would achieve a continuation of the business or not.

So this looks like partly an adjudication on prospective solvency of the parties so will involve some speculation and indeed the services of accountants.

At first glance this could be an ingenious way of resolving rent disputes; it will be interesting to see how the actual operation of such legislation moves forward in practice. It is however what commerce has been asking for.

Of course parties could decide to mediate instead. Operating on the same principles, as this could well be a far cheaper way forward than the adjudication route which is never known for its cheapness! And it would make sense, if mediation is to be engaged in, to get on with it sooner rather than later. What is more is that the mediation route is more likely to enable good relationships to be retained between the parties.

So it is in fact quite a day today and hopefully the beginning of the end in terms of how rent disputes after covid are going to be settled.

Adrian Leopard     10-11-21

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