The End of the Moratorium – 25 March 2022
Blog by Mark Brassey from Partners CBG Law. For a FREE 15 minute surgery with Mark or one of his colleagues please email: firstname.lastname@example.org
On 16 June 2021, the government announced that the measures to protect commercial tenants from eviction would be extended to 25 March 2022. There is only a short period of time before this moratorium is about to come to an end. Commercial tenants should therefore prepare themselves for life after the moratorium. In simple terms, the end of the moratorium will mean that landlords’ ability to forfeit leases again by peaceable re-entry or by the service of proceedings for non-payment of rent will be fully restored.
The ability of landlords to forfeit will be affected by the provisions of the Commercial Rent (Coronavirus) Bill 2021-22 (the CRCB) once that is in force but for reasons explained below those will be limited. It is anticipated that the CRCB will be in force by 25 March 2022. It appears to be on track for the Royal Assent in time.
The CRCB includes important provisions to ringfence arrears of rent which were built up during the Covid-19 pandemic.
Who does the CRCB apply to?
- It applies to 1954 Act leases.
- It will not apply to licenses, tenancies at will, or leases outside the provisions of the Landlord and Tenant Act 1954.
- It applies to rent arrears, which include service charges, insurance rent, interest, and VAT.
- It applies if the tenancy was “adversely affected by Coronavirus” and the rent accrued during the protected period.
- The ring-fenced and protected period is from 2 pm 21 March 2020 to 11.55 pm on 18 July 2021 in England and 6am on 7 August 2021 in Wales.
What is the process?
- Where landlords and tenants have not been able to reach an agreement in relation to arrears the CRCB includes provisions for a new arbitration scheme.
- The new arbitration scheme will only apply to rent arrears that have built up in the protected period.
- It is supported by a new Code of Practice which offers guidance on how the parties should negotiate.
- The arbitrator will be able to make an award that can (1) write off part or all of the debt; (2) allow time for the debt to be paid; or (3) reduce any interest. Any repayment scheme directed by the arbitrator cannot be for more than 24 months.
- When an arbitrator has been appointed he must have regard to two principles: (1) any award should be aimed to preserve or restore and preserve the viability of a tenants business so far as that is consistent with preserving the landlord’s solvency; and (2) the tenant should be required to meet its obligations to pay the protected rent in full and without delay.
- The parties have a 6 month period from the date the bill is passed to refer to the new arbitration scheme.
Does the CRCB apply to cases where proceedings were issued before 10 November 2021?
- For claims that were issued before 10 November 2021 there are different schools of thought. Some argue that the CRCB will not affect those proceedings.
- In Knightsbridge Green Estate (2015) Limited v FSAFO Limited, a case heard before HHJ Backhouse at Central London County Court on 28 February 2022, it was argued that the landlord’s claim for around £2m of rent arrears should be stayed until after the Bill receives its Royal Assent and until after the hearing by the Court of Appeal on June 22 of the appeals in Bank of New York Mellon (International) Ltd v Cine- UK Ltd  EWHC 1013 (QB) and London Trocadero (2015) LLP v Picturehouse Cinemas Ltd  EWHC 2591 (Ch).
- The argument is based on a reading of Schedule 2 of the Bill (as amended by Grand Committee and published on 10 February 2022) that sub-paragraphs (4) to (7) of Clause 3 of that schedule stand alone to govern such situations as denoted by the words in (4) “if judgment on the debt claim is given in favour of the landlord during the period described in sub-paragraph (1)(a)” – the period between 10 November 2021 and the day the Act is passed. HHJ Backhouse stayed the claim, as the tenant had requested.
- Schedule 2 to the CRCB includes retrospective provisions for certain claims started on or after 10 November 2021 but before the CRCB is passed.
What are the consequences of the CRCB?
- When the bill is passed, landlords will be prevented from a number of actions in relation to rent accrued during the ringfenced/protected period, including:
- Starting a debt claim
- Using CRAR or enforcing a right of forfeiture in relation to a protected rent
- Drawing down on a rent deposit (where a drawdown has occurred before the Bill is passed, the tenant is not required to top up the rent deposit
- Presentation of a winding up petition against a business tenant
- Presentation of a bankruptcy petition against an individual commercial tenant where a statutory demand was served on or after 10 November 2021.
- This applies during a newly defined Moratorium period, which is 6 months from the date when the Act is passed or where a matter is referred to arbitration, the day on which the arbitration concludes.
The new arbitration process will give tenants the ability to have any disputes relating to rent accrued during the protected period resolved in an independent assessment. The hope and expectation for tenants is that it will allow them the opportunity to have their arrears reduced or written off. Time will tell to what extent the process will or won’t work in tenants’ favour.