Insolvency practitioners and the proposed Commercial Rent (Coronavirus) Bill – a match made in heaven

The proposed Commercial Rent (Coronavirus) Bill and updated Code of Practice represents a commercial and pragmatic response by the legislator to resolving the apparent billions of pounds of commercial rent arrears arising out of the pandemic.

What does the Commercial Rent (Coronavirus) Bill propose?

For the purposes of this article, we focus on its proposal that an arbitration process be instigated for unpaid rent or outstanding service charges (and interest) due under a business tenancy from 21 March 2020 until the end of the relevant restrictions for the business in question. If proposals for repayment of those arrears cannot be resolved amicably between the landlord and the tenant, the new arbitration process will provide a mechanism to address the arrears and allow the parties to move on. There will also be a stay on debt claims relating to the commercial rent arrears issued between 10 November 2021 and the Bill coming into force. The proposed arbitration process should allow a speedy, and hopefully economic, resolution to the non-payment of rent etc.

The referral to this new arbitration process may be made by the landlord or the tenant, but it must be made within six months of the date on which the Bill is passed. The referral must be supported by formal evidence outlining the referring party’s proposal for settlement of the outstanding monies. The other party must respond within 14 days with its own proposal. Either proposal can be amended within 28 days.

The teeth to the arbitration process comes from the fact that the usual recovery remedies for rent arrears due within the scope of the Bill are suspended until:

1. the arbitration referral period expires without a referral; or
2. the arbitration is concluded.

What is the underlying focus of the arbitration process?

In essence the process is geared to enabling the parties to remain solvent and the tenant to be able to reach a settlement regarding rent liability. This is highlighted by the focus given to the arbitrator by the legislator. The arbitrator must:

1. focus on the ability of the tenant’s business to be preserved or restored except where this might jeopardise the landlord’s solvency; and
2. provided this is consistent with the above principle, the tenant should be required to pay the outstanding sums in full and without delay.

Before the Bill finally becomes law there are a number of issues to be ironed out, too many to set out in this brief article, but which include questions such as what will happen in the situation where the tenant has more than one lease with the same landlord or what the effect of the proposed arbitration process has on the position of any guarantors.

So, what is the link between the proposed arbitration process and insolvency practitioners?

It seems that if a matter is referred to arbitration by either party, some detailed evidence and analysis must be given towards the tenant’s actual ability to pay the outstanding sums and of equal importance, the financial impact of that repayment schedule (which can last up to two years) upon the solvency of the landlord – key issues that any arbitrator needs to focus upon.

The skills relating to the preparation of a credible financial analysis of any proposed settlement which will enable the arbitrator to have a comprehensive overview of the information required to make an informed adjudication award would seem to sit full square with the sort of analysis carried out by an insolvency practitioner (that is, of course, if the arbitrator is not an insolvency practitioner).

What templates could be more relevant to assisting an arbitrator than a credible and realistic cashflow forecast and estimated outcome statement for the relevant parties?

The envisaged arbitration process is a potential saviour for the tenant and the landlord, albeit the two-year limitation on repayment proposals could be damaging for the landlord. Whether you are the tenant or the landlord, having a viability report from an insolvency practitioner, as part of your evidence in support of the arbitration process, could undoubtedly assist your negotiating position.