Commercial Rent Arrears – Real Estate Update for Landlords and Renters | Allen & Overy LLP
The purpose of the bill is to provide landlords and tenants who have been unable or unwilling to reach an agreement thus far with the means to resolve commercial rent arrears that have accrued during the pandemic (although only arrears accumulated during the period the commercial tenants were mandated to close).
What will happen in practice once the bill is enacted?
Much has been written about the bill’s potential shortcomings and the difficulty, in practice, of making its provisions work. In many cases, however, the purpose of the bill has already been achieved – the mere publication of the bill and the expected date for the introduction of binding arbitration have created a backdrop for the settlement and, in our experience, the majority of large tenants (often in the ‘can pay, won’t’ category) and their landlords have done so.
Our estimate is that, of the remaining unresolved disputes (which may still be numerous), many will relate to small retail tenants for whom the bill’s viability requirement will be of real concern. When requests are made, we think we can see something that looks more like rudimentary justice than procedural scoring.
Who will apply?
Those with the most to gain are the tenants – if they want a chance to reduce their unpaid rent, they will seek to appoint an arbitrator. Otherwise, after the expiry of the 6 month claim period, all rent will be due and the protections against landlord action will be lifted. Where tenants have failed to engage with landlords so far, upon request, they will be required to submit a proposal, which will at least open discussions.
Owners may be less likely to initiate arbitration because when an arbitration award is made, they may still need to use enforcement to obtain the funds. On the other hand, if homeowners wait for the 6 month claim period to expire, the full suite of enforcement tools will be available to them to achieve full recovery. They might consider serving a legal demand which can give them an improved platform from which to negotiate and, at the very least, should determine if the tenant is good for the money.
Over the next few months we will see if, as some have predicted, the thousands of applications materialize and if those who apply can make the new process work to achieve results that allow the parties to move forward and focus on stabilization of their activities after what has been a difficult period for all.