Support remains in place for pandemic rent arrears
Alok Loomba looks at tenant operators’ rights under the Commercial Rent (Coronavirus) Act 2022 and the circumstances in which they may be reassured amidst the latest economic crisis.
After suffering what can only be described as the most challenging conditions faced by the leisure sector in a generation, during the COVID-19 pandemic, with enforced closure for much of 2020 and some of 2021, leisure businesses are, at last, starting to get back on their feet.
The return of a thriving leisure scene in the North East is encouraging to see, the leisure and hospitality sector having for decades been integral to the local economy, with operators now able to take full advantage of the growth in confidence within the market – both locally and as a result of tourism – since those tentative steps out of lockdown in 2021.
However, while COVID lockdowns now appear to be a distant memory, leisure operators are now facing a new set of challenges. Recruitment and soaring energy costs are proving to be ongoing and persistent challenges and the cost-of-living crisis looms large over the sector, with soaring costs already biting and these look set to get even worse as the months go on. Whether footfall will be impacted as consumers look to shore up their own finances remains to be seen. Will entertaining and socializing take the hit – as customers struggle to make their disposable income meet the basics? It’s possible that these factors may reduce turnover and profit margins for leisure businesses, thereby increasing the financial squeeze.
It’s not just the cost-of-living crisis that has leisure operators concerned. Many tenant operators are still under the shadow of arrears owed to their landlords that remain outstanding from the height of the pandemic. There is potentially one bit of reassurance for leisure businesses amidst the developing economic situation, with regard to outstanding rent arrears incurred during the COVID pandemic.
Amidst closure, or being forced to significantly revise their offering, for the best part of 16 months, many operators incurred sizeable debts around their rents, which remained due to landlords even though the premises were unoccupied or used to a small proportion of their normal capacity.
The Coronavirus Act 2020 afforded protection against eviction to those who were unable to pay their rent, although the total ban on forfeiture of commercial premises ended on 25 March 2022.
In its place has arrived the Commercial Rent (Coronavirus) Act 2022= (“CIRCA 2022), which ringfences outstanding unpaid rent built up during periods of forced closure of businesses during lockdowns and offers tenants protection for these.
While agreement between landlord and tenant is encouraged over these protected debts – which a specialist advisor can support – if this is not possible, the Act introduces a legally binding arbitration route to achieve resolution, with a supporting Code of Practice. The CRCA 2022 provided a six-month window in which a referral to the statutory arbitration scheme could be made. This ended on 23 September 2022, however the CRCA 2022 will continue to apply where a valid referral was made during the six-month window. Court proceedings to recover debts cannot be issued while arbitration remains an option.
Furthermore, a landlord cannot use these protected debts that fall within the CRCA 2022 to terminate a lease or enforce an eviction, providing there has been no actionable breach by the tenant – affording further protection to leisure operators who have faced such huge pressures since March 2020.
The route of finding a positive way forward through co-operation, or else arbitration, between landlord and tenant is one which will hopefully bring confidence to leisure businesses with knowledge that they remain safe in their premises, as debts incurred between 21 March 2020 and the date when specific restrictions on the relevant sector were removed, are protected. This is subject to a cut-off point of 18th July 2021 in England and 7 August 2021 in Wales. By way of example, in England, the protected period for non-essential retail will be between 21 March 2020 and 12 April 2021; for nightclubs, it will be 21 March 2021 to 18 July 2021.
As the trade looks to the months ahead and considers the impact of the developing cost of living crisis, we hope the Commercial Rent (Coronavirus) Act 2022 will continue to give them breathing space from the legacy of the COVID pandemic.
For any concerns around the implications of the Act, what it means for your business, or support in negotiating with your landlord, our leisure team will be able to assist.