Insights 14th July 2022 Covid-19

Following the first known arbitration under the Commercial Rent (Coronavirus) Act 2022, Richard Hart, Head of Property Management at Workman told City AM:

“This gives us an early indication of how the coming months might unfold, and certainly provides clarity and confidence for landlords that, in scenarios where mutually acceptable solutions cannot be agreed in advance, the arbitration process is operating in line with the provision set out by the Act.”

See the full story of the case as reported by City AM here

With legislation now in place setting out how arrears arising from the period of the pandemic should be treated, and disputes resolved, Workman is collaborating with clients to clear the backlog of debt within this legal framework.

Initial cases have given an early indication of how the coming months might unfold, and have provided clarity and confidence for landlords that, in scenarios where mutually acceptable solutions cannot be agreed in advance, the arbitration process is operating in line with the provision set out by The Commercial Rent (Coronavirus) Act 2022 .

How are the new Covid rent arrears rules being applied practically?

As a result of the new legislation and the creation of a strict timescale for application to the arbitration process, there are some key steps for landlords:

  • Engage with occupiers to resolve protected arrears by agreement – as a referral to arbitration may be costly, time consuming and the result uncertain.
  • Have a clear understanding of the tenant’s financial position – The Code of Practice for Commercial Property Relationships following the Covid 19 pandemic still applies – if a tenant can pay, even if they were forced to close, they should pay without delay.
  • Allocate tenant payments correctly – the Act prevents landlords from applying payments now received to protected debt where there is unprotected debt. Where tenants specify that monies paid relate to a certain period landlords cannot allocate these to anything else and if the tenant is silent, it should be set off against the oldest arrears, provided that it is not a protected debt.
  • React promptly if a tenant refers to arbitration – by constructively making a proposal for settlement, otherwise the applicant’s proposal may be automatically imposed.

How can Workman help?

Within our role as property managers, we are working collaboratively with both clients and occupiers to reach mutually acceptable solutions to avoid the uncertainty and costs of arbitration.

Particular areas of focus include;

  • Assisting clients to identify asset management opportunities to form part of negotiations – such as removing or deferring break clauses or extending the lease term to enhance asset value.
  • Calculating protected and unprotected arrears – to feed into negotiations.
  • Allocating payments correctly – particularly important where the occupier is silent on allocation and monies should be allocated against any unprotected arrears first.
  • Assisting clients to understand underlying covenant strength – to inform negotiations.
  • Implementing CRAR (where applicable) – and recommending other remedies where there are unprotected arrears e.g. use of deposits.
  • Agreement of concessions (outside of the arbitration scheme) – assisting clients and solicitors document these with and subsequently monitor compliance.

To find out more about the impact of The Commercial Rent (Coronavirus) Act 2022 and how the new legislation affects negotiations with occupiers, read our latest client bulletin COVID Rent Arrears Update July 22.