Commercial Rent (Coronavirus) Act 2022 and service charge arrears

On 25 March 2022, the Commercial Rent (Coronavirus) Act 2022 became law to help resolve commercial property-related debts following the pandemic.

In this article, we explain how the Commercial Rent (Coronavirus) Act works, to whom it applies, the types of rent arrears it covers and, importantly, what you need to do.

The new law creates a legally binding arbitration process for certain commercial rent debts, including service charges, incurred because a business had to close because of COVID-19. It covers proceedings issued since 10 November 2021 and/or where no agreement on repayment has been reached.

The overarching aim of the Act is to enable viable businesses to survive, and to create a forum or resolution. It replaces section 82 of the Coronavirus Act 2020, which imposed restrictions on commercial landlords in respect of rent arrears recovery and forfeiture of the lease, and it ends the general moratorium on commercial evictions.

Generally, non-payment of service charge is seen as a residential issue for Managing Agents and RMC Directors. However, the rise in the number of mixed-use developments, plus the type of commercial premises that are often found in a mixed-use estate (gym, leisure facilities, non-essential retail) make this a very relevant topic for many of our clients.

At Bradys, we are seeing how non-payment by commercial units can create a substantial issue for clients who manage mixed-use blocks.

Protected rent arrears

The new law is focused solely on rent arrears that have accrued because all or part of a business has been forced to close due to the pandemic. If a business has not had to close (for example a supermarket, chemist or so forth), it is not eligible for the arbitration process, however it may have been affected by the pandemic.

The Act covers a ‘protected period’, which is defined as starting on 21 March 2020, when lockdown restrictions were first imposed by the government, through to the date that the business could re-open. For some businesses, this was 12 April 2021 (the relaxation of lockdown rules for non-essential retail) and for others this was 18 July 2021 (the lifting of all restrictions – for example for nightclubs).

The debt can be relevant to a period of all or part of the protected period.

The Act only deals with outstanding arrears up to 25 March 2022, and where no agreement has been reached.

Does the Act include service charge arrears?

Yes, it does. In fact, the scope of the definition of service charges is very broad, including “fees payable for services, repairs, maintenance, and insurance costs.”

How does the arbitration process work?

Each party has six months from 25 March 2022 to refer their case to the new arbitration process. This six-month period expires on 25 September 2022 but may be subject to an extension (not least if there is a shortage of arbitration specialists!).

Importantly, the arbitration process is not optional! If the tenant refers the case to arbitration, then the landlord must participate, and vice versa.

During the arbitration process the freeholder may not issue court or forfeiture proceedings to recover the arrears; draw down a rent deposit for an unpaid rent debt or present a winding-up petition or bankruptcy order.

The arbitrator will assess the evidence from each party and can award relief from payment, for example by writing off some or all monies owed or allowing a temporary period of payment by instalments. Equally, if a business can afford to pay the arrears, then the arbitrator can order them to do so.

Arrears claims before 10 November 21

The Act will not affect proceedings started before 10 November 2021. Any proceedings after this date – and where no agreement has been reached – can be referred by either party to arbitration.

What about the costs?

The Act requires each party to share the costs of arbitration and any hearings, but each party will be expected to bear its own legal costs. The government has stated it will monitor the fees charged by arbitrators, but there could be a substantial financial burden on both parties if proceedings are complex and take time to resolve.

Advice on recovering commercial service charge arrears

If you are facing unpaid service charge arrears in a mixed-use development, Brady Solicitors can help. Our first step will be to ascertain if the arrears you are pursuing are ‘protected’. Did they arise during the protected period (21 March 2020 to 18 July 2021 or earlier), and were they accrued because the business was forced to close because of the pandemic?

We can help to guide you through the most effective and sensible legal and commercial options to help you recover the arrears. As highlighted above, the arbitration process relies heavily on evidence, and preparation of a clear case is essential. Where there is an ongoing leaseholder relationship then it may also be important to preserve this.

Get in touch with our experts

With hundreds of years’ worth of combined experience, our experts have dealt with nearly every leasehold property matter you can imagine. If you’re currently in need of legal support or advice, please get in touch.

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