A policy paper outlining a process of binding arbitration, to be used only as a last resort, has recently been published. It explains how the legislation will determine how the arbitration process will be implemented between landlords and tenants when they cannot agree between themselves and otherwise come to a resolution.

The principles on which the process is based will be published soon in a revised and strengthened Code of Practice. This will allow landlords and tenants time to negotiate on the proposed new basis before the legislation becomes binding.

Since 23 March 2020, the provisions of Section 82 of the Coronavirus Act 2020 have prevented commercial landlords from evicting their tenants because of rent arrears, in England, Northern Ireland and Wales. The UK Government has now extended these measures until 25 March 2022 to allow time to put extra commercial tenant protection measures in place with the intention of supporting viable businesses and jobs.

The current voluntary Code of Practice was published by government in conjunction with industry bodies to encourage commercial tenants and landlords to work together to protect viable tenant businesses.

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The Code encourages commercial landlords to make concessions on rental payments where businesses have suffered through lockdowns and genuinely are struggling to make full rent payments, through various options, including rent deferrals and waivers.

Those businesses affected by lockdown closures will fall under the protection of the new legislation and will be protected up until the sector they operate in is no longer affected by trading restrictions.

Binding arbitration once entered into will mean that commercial tenants, unable to pay rent arrears off in accordance with the terms of their lease, or as otherwise agreed by the landlord, will be bound by the decision of the arbitrator and will have to pay off the accrued debts if that’s what the arbitrator decides.

Once the new legislation becomes binding, commercial landlords will be in a position to evict any tenant for the non-payment of rent debt incurred before the pandemic started in March 2020 and after the protection offered by the ring-fenced period.

It is also the case that commercial tenants who were not affected by coronavirus-related closures and have the means to pay, must do so.

The government states that:

“…the extension of current provisions, publication of a strengthened Code of Practice, and the development of a system of binding arbitration – triggers the start of a return to ‘business as usual’, by balancing protecting landlords and supporting those businesses most in need.

“It will ensure that many viable businesses can continue to operate, and that debts accrued as a result of the pandemic are quickly resolved to mutual benefit.”

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