Covid rent arrears arbitration service closes: What now?

The deadline for applications to make a reference to the Covid Arbitration process was 23 September 2022.

A crucial deadline for landlords and tenants has, with all the news of recent weeks, quietly passed without much notice.

The Commercial Rent Arrears (Coronavirus) Act 2022 imposed a moratorium on certain remedies available to landlords to recover arrears falling due in periods during which lockdown restrictions were in force (known as protected rents). The moratorium prevented a landlord starting debt claims, winding up companies, using rent deposits, using the Commercial Rent Arrears Recovery procedure and forfeiture for non-payment of rents.

The Act also established a new Arbitration process for so called “covid arrears” cases to be considered and settled.

The deadline for applications to make a reference to the Arbitration process was 23 September 2022.

Perhaps surprisingly, that deadline, which was also the date when other protective measures mentioned above were to come to an end, was not extended.

So,

1. Landlords are now no longer restricted in how they can pursue claims for “covid arrears”
2. The Arbitration process is now closed to new cases.

When Joe Biden declared recently that Covid was over he probably wasn’t referring to the closure of the Scheme but for the property industry this is the final farewell to Covid regulations. The decision not to extend the deadline marks the end of Government measures introduced to protect business tenants forced by virus control restrictions to close or restrict access to their business premises.

In June 2021, the British Property Federation estimated £7.5bn of commercial rent was in arrears and anecdotal evidence suggests that many parties have decided to avoid the Scheme and reached commercial settlements. But for those tenants who refuse or cannot pay the debts owed, where does closure of the Scheme leave them?

Whether there will now be a wave of debt claims and insolvency proceedings is impossible to predict. But what is clear is tenants withholding payment of protected rents no longer have statutory protection and nor do they have a viable legal argument to avoid liability following the decision in the Court of Appeal [London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others alongside Bank of New York Mellon (International) Ltd v Cine-UK Ltd]. The ball is firmly in the landlord’s court.

Landlords may take enforcement action to recover the protected rent arrears without restriction. Those landlords with an ability to re-let either at the same or higher rent may be willing to take enforcement action to recover possession and re-let. A weak pound, increased energy costs and uncertainty surrounding the Government’s recent economic policy may mean some landlords face difficulty re-letting and will be happy to allow their tenants to continue occupying provided they pay rents going forwards. Parties will continue to negotiate commercial settlements in relation to historic arrears, but landlords will welcome the return to a pre-pandemic state of affairs.

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