Is binding arbitration the long term solution to Covid 19 rent arrears?

The recent cases of Commerz Real Investmentgesellschaft v TFS Stores Ltd [2021] EWHC 863 and Bank of New York Mellon (International) Ltd and v Cine-UK Ltd and others [2021] EWHC 1013 have highlighted the need for parties to reach a resolution on rent arrears which have arisen as a sole result of the COVID-19 pandemic.

On 4 August 2021, the UK Government released their response to the recent call for evidence on commercial rents and the significant arrears which have accrued as a result of the Covid-19 pandemic.

Supporting Businesses with Commercial Rent Debts: Policy Statement sets out a three-step approach to rent arrears going forward:

• Legislation will be introduced to ringfence commercial debt since March 2020 by tenant affected by business closures as a result of Covid-19
• The Government will set out a process of binding arbitration between landlords and tenants as a last resort where negotiations fail
• The Code of Practice introduced in June 2020 to manage commercial property relationships during the Covid-19 pandemic will be revised and strengthened to further allow negotiation between landlords and tenants giving further time for parties to negotiate in good faith

The Policy Statement also confirms that the ban on forfeiture of commercial leases will continue until 25 March 2022.

The Government aim is that the binding Arbitration will assist in dealing with the backlog of rent arrears claims in the Court system and allow a more cost-efficient way for landlords to recover arrears. The Government has stressed again the importance of landlords and tenants negotiating and looking to share the financial burden of Covid-19 in a hope that a position of compromise can be reached in order to avoid needing to use the Binding Arbitration process. How this will work in practice is however unclear at this time and the Government will announce more details in the coming months.

It is important to note that the binding Arbitration refers only to the ringfenced rent arrears from March 2020 onwards and landlords will still be able to use the Court System for arrears prior to March 2020.

For any queries on the Government's announcement or rent arrears generally please do get in touch.