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Insight Comment |
The UK government is hoping to resolve the remaining commercial rent debt disputes brought about by the pandemic with the introduction of new laws and a code of practice.
With Covid-19 forcing the government into numerous lockdowns during 2020 and 2021, hospitality businesses saw their revenue tumble with many unable to pay their rent. The government stepped in, effectively banning evictions. This is due to expire on 25 March 2022.
Up until that date, tenants and landlords are being encouraged to try and resolve their differences. They will now be aided by a new code of practice, which aims to set out a clear process for settling outstanding debts before a new arbitration process comes into force.
New laws introduced in parliament earlier this week will establish a legally binding arbitration process for commercial landlords and tenants who have not already reached an agreement, following the principles in the code of practice. Subject to parliamentary passage, this will come into force next year.
The new laws will apply to commercial rent debts related to the mandated closure of certain businesses such as pubs, gyms and restaurants during the pandemic. Debts accrued at other times will not be in scope.
These laws will come into force in England and Wales, and Northern Ireland will have a power in the bill to introduce similar legislation.
What does it mean for hotels?
Many in the industry were critical of the government’s lack of clarity on the issue and will welcome the new proposals. It is noteworthy that from a landlord perspective the British Property Federation have been quoted in the press release, implying support for the scheme. UK Hospitality CEO Kate Nicholls, also welcomed the publication of the code of practice.
According to survey data from the British Property Federation indicates that agreement has been reached on the treatment of rent arrears in the vast majority of cases – more than 80% – since the start of the pandemic, so the level of disagreement is relatively small.
The new rules will only cover the government-mandated closure of businesses rather than looking at the period as a whole.
What They Said
Business secretary Kwasi Kwarteng: “[The] measures provide commercial landlords and tenants with the clarity and certainty they need to plan ahead and recover from the pandemic.
“We encourage landlords and tenants to keep working together to reach their own agreements ahead of the new laws coming into place, and we expect tenants capable of paying rent to do so.”
Dev Desai, partner at law firm Watson Farley & Williams LLP: “The code comes with a draft bill for the arbitral scheme and so together they are, in principle, sufficient. However, the devil is in the detail. For instance, a focus on mandated closure rather than the insidious and sometimes subtle / indirect commercial impact of the pandemic makes the proposals a somewhat blunt and rather inadequate tool overall.”
Charles Scudamore, CEO and founder of hotel investor and alternative asset manager Hetherley Capital Partners: "The new planned laws and Code of Practice announced by the UK government designed to resolve the remaining commercial rent debts accrued as a result of the pandemic are lacking in detail and, as a result, reassurance. As we approach the winter, increasing rates of COVID-19, supply chain challenges and rising costs, hotel owners and investors will be looking at every available tool and resource to assist them.
“This new advice falls short of a solution and so, instead, owners will have to re-examine their operations to see where they can be more nimble and it is those with experience on the ground who will be able to pull the levers and find the angles to drive profit."