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Protected Rent Arrears - First Arbitration Test

Protected Rent Arrears - First  Arbitration Test

As many commercial landlords will be keenly aware, the Commercial Rent (Coronavirus) Act 2022 (“CRCA”) came into force earlier this year and introduced a mandatory scheme of arbitration in respect of what it defined as “Protected Rent Debts”.

A Protected Rent Debt under CRCA consists of rent or service charge (or interest on the same) which arose by falling due during the Protected Period, when a business tenancy was “adversely affected” by the restrictions put in place to try to manage the Coronavirus pandemic.

The Protected Period began in all cases with the first national “lockdown” on 21 March 2020 and depending upon the nature of the business in question, ended on the last date when any part of the business that the tenant was conducting from the leased premises were subject to a statutory closure requirement. These end-dates ranged from 13 May 2020 (for garden centres) to 18 July 2021 (for restaurants, bars, nightclubs, cinemas etc).

Any arrears falling outside of the relevant Protected Period are not treated as “Protected Rent Debts” and are not subject to the requirements of CRCA – notably the mandatory arbitration scheme. These can be recovered through the normal channels – such as the Commercial Rent Arrears Recovery Scheme, a money claim in Court, forfeiture of the lease (where applicable) etc.

The arbitrators under the CRCA mandatory scheme are empowered to make a finding as to what (if any) part of a claimed debt is a Protected Rent Debt, and subject to that, to make an award with a structured time for payments to be made within 24 months, or to write off some or all of the debt and interest.

The first arbitration under the CRCA scheme has just taken place.

The tenant business was a retailer with a large chain of stores across the country selling jewellery, watches, accessories and offering services such as ear-piercing. These were “non-essential retail” services and so they had been forced to close as a result of the pandemic restrictions from 21 March 2020 until 12 April 2021.

However, the rent arrears which came before the arbitrator related to the company’s head office premises, which ordinarily housed over 170 staff. During the pandemic, the majority had been furloughed, while 35 had continued working, predominantly from home.

Rent arrears had accrued under the lease of the office premises for the quarters commencing on 25 March 2020, 25 December 2020 and 25 March 2021, totalling £448,043.04 plus interest.

The Landlord and Tenant had been in dispute over whether the arrears were a "Protected Rent Debt" for the purposes of CRCA. The Tenant argued that since the sole purpose of the office premises was to service the business of the (forcibly closed) retail premises, then its business conducted from those offices was also “adversely affected” in the same way during the relevant “Protected Period.”

The Arbitrator found, however, that the business carried on by the Tenant at the office premises was not subject to a closure requirement, and that CRCA only operated for premises (and not businesses more widely) which were required to close by law. In the case of a retail business like this tenant, that meant the shops, but not the offices where operations took place that supported the retail business elsewhere.

This meant that there was no Protected Rent Debt and the reference to arbitration was dismissed, with the Arbitrator also suggesting that he was minded (subject to further submissions from the parties) to award costs against the Tenant.

In the meantime, the Landlord will therefore be entitled to exercise their usual range of remedies against the Tenant in respect of those rent arrears.

SJP Law are experienced in advising both commercial landlords and tenants in negotiating, renewing and ending leases, but also in the disputes that unfortunately sometimes arise. We will always strive to offer pragmatic and commercial advice based not only on the law, but also on an understanding of our client’s particular situation and business.

If you have any queries regarding this topic, please contact SJP Law on 01482 324591 or 01904 928720.

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