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Covid Rent Arrears Arbitration | |
There are many businesses that have been adversely affected by the pandemic, some of which have had to close for significant periods of time because they operated in the hospitality, retail or leisure industries.
Some of these businesses will have built up significant rental arrears from closure periods, which if had to be repaid immediately would affect the viability of the business. Most tenants will have had positive dialogue with their landlords and agreed basis of payment potentially involving some debt forgiveness and a payment plan for the remainder. | |
However, there may be situations where agreement cannot be reached and in such circumstances landlords and tenants both have the option of looking to the Commercial Rent (Coronavirus) Act 2022 for a binding arbitration process. Although, time is of the essence as this scheme is scheduled to end on 24th September 2022. | | | |
The arbitration process is legally binding on the parties and will provide certainty for both the landlord and tenant. The applicant, who can be either the landlord or the tenant, submits a formal proposal which sets out the outcome that they are seeking, including what proportion of the rent debt they believe should be repaid and on what terms. The respondent, again either the landlord or tenant as the case maybe, then has the opportunity to submit a formal proposal in response. | |
The arbitrator will review the proposals received and will assess the viability and profitability of the tenant in light of those proposals and will also assess the impact on the solvency of the landlord. The arbitrator will then determine what should be paid and when.
The cost of arbitration will depend on the level of rent outstanding and at the lower end where rent outstanding is less than £50k the arbitrator’s fee is set at £1,500. In most instances where modest amounts of rent are due both landlords and tenants will probably only need minimal input from professionals in the arbitration process. | |
However, where larger sums are at stake landlords and tenants may want professional reports to support their case that is put to the arbitrator. Clearly, parties need to be mindful that the costs of professional advice are not disproportionate to the debt involved. For situations where tenants are looking to reschedule or reduce rents of around £100k we consider that we can offer a cost-effective service. | | | |
Our involvement would be to produce viability and profitability reports in support of their case in the arbitration process. Such reports will be detailed and will look at the current trading activities, the current financial position, future plans, financial forecasts, and cash flow analysis. Identifying what is an affordable repayment and over what period. | |
We can assist landlords by reviewing their solvency and analysing the impact of any debt write off or rescheduling. In order that the arbitrator can balance the needs of the tenant and the financial impact on the landlord. James Cowper Krestons’ turnaround, restructuring and insolvency team are experts in assessing viability and solvency and have significant experience in such reports. | | | |
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Whether you are a landlord, tenant, or professional advisor helping such businesses, please do get in touch so by contacting any members of the TRI Team. Watch out for further newsletters from us, covering a variety of topics for restructuring your business.
Kind regards
Sandra Mundy
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The information in this newsletter must not be relied on as giving sufficient advice in any specific case. | | | |
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