Many of our clients will be concerned about the end of the moratorium and what this means for them.
On 25 March, the extended moratorium on the eviction of commercial tenants impacted by Covid-19 measures comes to an end. Many of our clients will be concerned about the end of the moratorium and what this means for them. If you still have unresolved disputes with your landlords hanging over you like a dark cloud, you’ll be understandably concerned.
Business owners face liquidation as arbitration looms
As businesses all over the UK were forced to shut up shop for months on end, many businesses found themselves unable to pay rent to their landlords. Some landlords have been understanding and have offered generous rent relief, while others have come to agreements with tenants over rent payments and lease terms. Others, however, have been far less flexible leading to long-term disputes, many of which have not yet been resolved.
As a result of this uncertainty, hundreds, if not thousands, of UK businesses will be concerned about the prospect of business liquidation if they are forced to pay large rent bills that they cannot afford. Unfortunately, the outcomes of the arbitration process are binding and cannot be appealed, so this concern is extremely understandable. We’re here, alongside the Commercial Tenants Association (CTA) to support and inform business owners through these worrying times.
When does the arbitration process start?
Any commercial tenants who have been unable to resolve disputes with their landlords over arrears built up over the past two years may need to be prepared for the arbitration process that can kick in post-moratorium.
1. Pre-application stage
Stage 1: Letter of notification
Either the landlord or the tenant issues a notice to the other party that they are pursuing binding arbitration. They must also submit a proposal for the settlement of the rent arrears in question in line with the guidance set out in the Code of Conduct with regards to factors like viability and solvency. Stage 2. The other party can accept the proposal or submit their own counterproposal. The party who initiated the arbitration process can then respond and can submit a further proposal if they wish.
2. Application stage:
Stage 1. The initiator must then submit an application for arbitration and pay the fee. The application must include the proposals and notifications issued in the pre-application stages.
Stage 2. Both parties will then have a set period of time in which to submit further proposals as to what they consider to be the right outcome of the arbitration process.
Stage 3. An arbitration hearing should then be set within two weeks and the arbitrators must base their decision on the written evidence provided by both parties, including any evidence they have included.
3. Decision
The arbitrators will then make their decision as to any award, according to the official arbitration guidelines: “the award will adopt whichever proposal is consistent with the principles, or if both are consistent the proposal which is most consistent. Otherwise, the arbitrator will make the award they consider is appropriate”.
Our view
In our blog about the publication of the Code of Practice back in November 2021, we talked about how the commercial rent arrears crisis could drive businesses into liquidation. The latest statistics from the Insolvency Service shows that, in the third quarter of 2021, the number of company insolvencies was 17% higher than the previous quarter and 43% higher than the same quarter in 2020.
Creditors’ voluntary liquidations on the rise
The increase was driven by a rise in creditors’ voluntarily liquidations (CVLs) to their highest quarterly level for well over a decade. We consider this rise in CVLs to indicate that many smaller businesses are still struggling to avoid business liquidation despite the government’s Coronavirus support, which includes the moratorium on commercial evictions.
As the official Code of Practice still includes ambiguities that will be open to interpretation in different ways by different arbitrators, some commercial tenants will no doubt receive a negative outcome from the binding arbitration process and business liquidation figures will continue to rise.
