Tenants wishing to have their disputes decided under the Commercial Rent (Coronavirus) Act 2022 should not wait too much longer.
The Commercial Rent (Coronavirus) Act 2022 came into force on 24 March 2022. As EG readers will be well aware, it provides a means of resolving disputes as to the fate of commercial rent arrears stemming from the periods over the pandemic when some businesses were unable to trade (“protected rent debt”, in the language of the Act). The Act provides for approved arbitration bodies including Falcon Chambers Arbitration (FCA), RICS and CIArb to appoint arbitrators to decide whether any relief (either from payment or time to pay) should be afforded to business tenants in such circumstances.
The impact assessment preceding the Act estimated 15,500 businesses to be within the scope of the arbitration procedure, of which around 7,500 cases were expected to go to arbitration. This estimate was subsequently modified to 2,500 potential cases – so still quite a lot. With just two months left, how are we doing?
Awards
Under section 18 of the Act, all arbitrators’ awards must be published, in sharp contrast to the usual practice under the Arbitration Act 1996. As a result, it is possible to see what progress has been made. Thus far, FCA (which has five ongoing arbitrations) has published three awards (see www.falcon-chambersarbitration.com/crca/awards). RICS, which is thought to have a similar number of ongoing arbitrations, has at the time of writing published none. CIArb, which is thought to have just one ongoing case, has not published any either (although we would be delighted to be corrected). Of the other four approved arbitration bodies, two have one each, while the remaining two are not thought to have any cases at all.
Moreover, the awards which have been published are primarily involved with points of law arising under the Act, and only one of them sheds light (but only a little) on the central issues arising under the Act, as to whether the tenant’s business would be viable if the tenant was given relief from payment of any kind; and if so what relief from payment might be given. Thus far, therefore, parties in the market are still waiting for an authoritative decision on these issues, which might set a useful precedent for their own cases.
Time is running
They should, however, keep an eye on the clock. The Act’s arbitration scheme is available for six months (of which four have already expired). Although that period is subject to extension by the secretary of state for business, energy and industrial strategy, it is thought unlikely that any extension will be granted. The last date for making a reference to arbitration is therefore on or about 23 September 2022: see section 9(2): “A reference to arbitration may be made by either the tenant or the landlord within the period of six months beginning with the day on which this Act is passed.” It would be prudent to take 23 September as the last possible date.
It would, however, be wrong to assume that a reference to arbitration can be left until that last minute. That is because section 10 of the Act requires any party wishing to make a reference first to notify the other party, and then to wait for a response, building in a delay of up to 28 days. In practice, therefore, parties wishing to make use of the scheme will have to act well before the end of August.
Under section 23 of the Act, the temporary moratorium on the enforcement of protected rent debts will come to an end on 23 September 2022, unless a reference to arbitration has by then been made. At that stage, those landlords who have been unable to use commercial rent enforcement processes such as forfeiture, CRAR or debt claims will be free to proceed, in the absence of further government intervention.
Tenants who remain unwilling to pay will have to dig deep for ideas, with their task now made considerably more difficult by the judgment of the Court of Appeal in the conjoined Covid rent appeals, Bank of New York Mellon (International) Ltd v Cine-UK Ltd; and London Trocadero (2015) LLP v Picturehouse Cinemas Ltd [2022] EWCA Civ 1021. On appeal, the tenants repeated two arguments which had been advanced in the courts below. The first was that, having paid an insurance rent covering insured risks which were defined to include pandemic, the rent cesser provision in their leases should be extended to cover those periods when they were unable to trade. The second was that their leases should have implied into them a provision for suspension of rent in the event of a lockdown, this being said to be what the parties would unfailingly have agreed had the possibility been drawn to their attention.
The tenants also added a fresh argument to the effect that there had been a partial failure of consideration, and that they should not have to pay rent in circumstances where the fundamental premise on which they had entered into their leases had not been satisfied. Following a two-day hearing at the end of last month, the court gave judgment on 25 July dismissing the appeals on all grounds. Unless permission is granted to appeal to the Supreme Court (which appears strikingly unlikely), that would seem to be the end of the so-called Covid rent defences.
So much for tenants who can but won’t pay. What of tenants who are unable to pay, but who consider that, if all or part of their rent arrears were waived or deferred, they would be able to carry on a viable business? Well, it is precisely for that category that the Act was designed in the first place – so tenants in that category should lose no time in proceeding with the requisite notification to their landlords and making a reference to arbitration before time runs out.
Guy Fetherstonhaugh QC and Mark Sefton QC are barristers at Falcon Chambers
