Binding arbitration under the Commercial Rent (Coronavirus) Act 2022 (“the Act”) was introduced by the Government as a last resort for landlords and tenants to resolve outstanding rent arrears that arose due to Covid-19.

What has happened so far?

In December 2021, it was estimated that there were £7bn of commercial property arrears as a result of Covid-19. When the Act came into force, the British Property Federation expected the new arbitration scheme to be little used. So far that prediction has come true and, nearly 5 months in, we are only aware of 4 awards.

What happens next?

Parties to a commercial lease to which the Act applies need to make their referral to arbitration by 23 September 2022 or they will lose their opportunity to do so. They must first serve notice of their intention to make a referral and the last day for doing that will be 26 August 2022.  If they miss the notice deadline, it is not clear whether they would be prevented from arbitrating or whether they could continue, perhaps with adverse costs consequences. Either way, it would be an unnecessary risk to take.

What action could a landlord take?

From a landlord’s perspective, a referral to arbitration may not be the best course of action because the arbitrator’s award may give the tenant relief from payment of some or all of the arrears. The onus is, therefore, likely to be on the tenant to take steps to make a referral to arbitration before the deadline.

If no referral is made then all of the usual remedies are available for the landlord after 23 September:

• court proceedings;
• CRAR;
• forfeiture;
• rent deposit draw down;
• insolvency proceedings – statutory demand/bankruptcy petition/winding up petition

If a landlord has not received notice of intention by 26 August 2022 then it is likely that the tenant is not intending to arbitrate. It would then be prudent for a landlord to consider its next steps for recovery of the arrears. For example, if forfeiture is a possibility then a landlord should take action to put a rent stop on the tenant’s account to avoid inadvertently waiving the right to forfeit for Covid-19 arrears by demanding rent after the protections come to an end on 23 September 2022.