Long-awaited rent arbitration process set to be announced

The government is finally releasing its draft Bill to provide a legally binding framework to deal with commercial rent arrears. Originally announced over the summer, the Bill will be welcome news to many tenants facing the prospect of eviction when the prohibition on forfeiture ends on 25 March 2022.

From 9 November 2021, all negotiations between commercial landlords and their tenants will be underpinned by a new Code of Practice with the expectation that both landlord and tenant will share the burden of the pandemic related rent burden.

We’re very keen to see the detail on the new Bill and Code of Practice and whether it will be sufficient to allow pandemic affected businesses to meet historic rent obligations whilst also servicing its COVID related borrowing. The Bill should be a positive step to support the ongoing rescue of many COVID-affected businesses yet as always, the devil is in the detail.

The negotiations between landlord and tenant are likely to be the difference between cessation and survival and it is important that businesses are well prepared for the process.

I have 4 top tips which businesses must consider before entering into landlord negotiations:

• Consider the viability of the business generally if trade has not recovered to a sustainable level. Are you satisfied that the business can meet its current rent commitment, servicing of arrears, its VAT deferment commitment and COVID related loan obligations and avoid a formal insolvency?
• Prepare trading forecast working model which can be updated to fully consider the cash flow impact of any potential rent agreement. Use this to stress test your finances before committing to a repayment plan;
• Take advice from a local agent regarding the leasehold property, current commercial rent, local market generally and the landlord’s likely stance in negotiations. Subject to the provisions of the final Bill, understanding the commercial reality for your landlord (if no agreement is reached) when entering into the negotiations will be hugely valuable;
• Consider taking legal/agents advice prior to agreeing any new terms.