Since the advent of the Covid19 Pandemic, throughout 2020 and 2021, the property litigation world enjoyed fast-moving developments in landlord and tenant law. The government’s restrictions were felt keenly on the frontline by commercial businesses – particularly retail and hospitality – when the government enforced national lockdowns.
Three cases made it to the High Court:
Commerz Real v TFS Stores [2021] EWHC 863
Bank of New York Mellon v Cine-UK[2021] EWHC 1013
London Trocadero v Picturehouse Cinemas [2021] EWHC 2591
In all three cases the landlord Claimant was successful in obtaining an order for payment of a rental arrears debt by the tenant. Based on the case law, it seemed that life was rosy for landlords. However, on 8 November 2021 the government proposed the Commercial Rent (Coronavirus) Bill – and everything changed (or slipped back to how it already seemed). The Bill is not yet in force but is due to be enacted into law in the New Year. The Bill prevents landlords from taking certain measures to enforce rent arrears:
- They can’t sue for it
- They can’t use CRAR (commercial rent arrears recovery) for it
- They can’t forfeit on it
- They can’t draw down rent deposits for it
The Bill will also mean that any existing debt claims (issued between 10/11/2021 and the date the Bill is passed) can be stated for arbitration. Any unpaid judgments obtained in that time can’t be enforced, but can be referred to arbitration.
The tables have turned squarely in favour of the tenant, who is able to buy time and in the end may be awarded a generous decision by the independent arbitrator – with the arbitrator granted some general – and quite unusual – powers under the Bill.
Awards will be made by reference to stated principles within the Bill, of which some important ones are:
- The award should aim to preserve/restore the viability of the tenant’s business so far as that is consistent with preserving the landlord solvency.
- So far as is consistent with the above, the tenant should be required to pay in full without delay.
So it could be an easy win for the landlord if it is a case of won’t pay rather than can’t pay. But otherwise, there is an apparent imbalance between the principals of tenants’ viability and landlords’ solvency.
At present there is very little guidance as to how viability is to be assessed. It seems from initial readings that the Bill has cross-party support – but the devil is in the detail and many of the minutiae are yet to be thrashed out.
At present (whilst the bill is only a bill and not yet enshrined in law) the onus appears to be on parties to make realistic – even generous – proposals. The bill is aimed to discourage parties from going in high or low as they would typically do during negotiations, given that there is a risk an arbitrator will consider the proposal inconsistent with the above principles and simply make an award that meets the other side is more realistic proposal. This is because the arbitrator is not asked to consider both sides and take a view. The bill sets out that if:
- Both the proposals are “consistent” with the principles, the arbitrator chooses the one which is most consistent with them and makes that proposed ward.
- If only one proposal is consistent, the arbitrator makes that proposed award.
- If neither is consistent, the arbitrator decides for him or herself.
Unfortunately for landlords and tenants it is a case of watch this space. It has been a difficult couple of years and the light at the end of the tunnel is still firmly out of sight – especially with a new round of Omicron arriving just in time for Christmas.
At LFBB we act for both landlords and tenants that have felt the brunt of lockdowns 1, 2 and 3. If you are a landlord or tenant facing difficulties then please speak to our Commercial Property Department on 0114 272 9721.
Have a Merry Christmas and a Happy New Year!