This article will cover the government’s extension of commercial relief measures, the proposed arbitration system, and why landlords and tenants should consider the inclusion of arbitration clauses in their leases.
The Pandemic continues to have a big financial hit on business owners renting commercial premises in the UK. In April last year, the government passed a moratorium on commercial evictions to assist commercial tenants who were unable to pay rent due to the economic impact of the pandemic. Despite the diverse relief measures employed by the government such as the furlough scheme and provision of generous grants to businesses, current commercial rent arrears are estimated at £5 billion with only one-fifth of commercial rent paid in the last quarter.
Many hospitality, retail and leisure firms continue to be closed or operate at a smaller capacity given the current trading restrictions. The government has proposed an extension of the eviction ban first established in April 2020 to continue supporting commercial tenants. It has also proposed a new arbitration system that will strike a balance in the protection of both tenants and landlords during this economic crisis.
This article will cover:-
The extension of the commercial eviction ban
The proposed arbitration system
Arbitration clauses
Benefits of arbitration in landlord-tenant disputes.
The Extension Of The Commercial Eviction Ban
On 16 June 2021, the Ministry of Housing, Communities & Local Government, Department for Business, Energy & Industrial Strategy, The Rt Hon Kwasi Kwarteng MP, and The Rt Hon Robert Jenrick MP announced that businesses that have been financially hit by the pandemic and were unable to pay rent will continue to be protected against eviction. The current existing ban of eviction on commercial tenants alongside the prohibition of the landlords’ seizure of tenants’ goods due to rent arrears were due to end on 30 June 2021. These measures have now been extended for an additional 9 months, therefore, availing commercial tenants with protection till 25 March 2022. This announcement was well received by the hospitality sector and night clubs which have been closed throughout the pandemic.
Although the above extension applies to all businesses, the proposed new legislation will only apply to businesses that were affected by shop closures. As such, any debt arrears accumulated before March 2020 and after the date on which trading restrictions will be lifted shall be actionable as soon as the new extension period expires.
The Proposed Arbitration System
The government is planning the enactment of new legislation to ring-fence rent arrears that have accumulated as a result of business closures during the pandemic. This legislation aims to give commercial landlords and tenants ample time to negotiate long-term repayment plans or waivers of some or all monies due in rent. In cases where a repayment plan cannot be agreed between the landlord and tenant, the government is keen to introduce a binding arbitration system that will encourage both parties to formally negotiate a repayment plan. The agreement negotiated under this arbitration system will be a legally binding agreement to which both parties will be required to adhere.
The new arbitration system will be handled by Arbitrators in accordance with the new legislation. The Arbitrators will undergo a vetting process to ensure their impartiality before the appointment.
Arbitration Clauses
An arbitration clause is a contract provision which states that the concerned parties agree to the use of arbitration as a means of dispute resolution. The arbitration clause will often provide details for the appointment of an arbitrator, what disputes the parties are willing to settle through this process, and the law governing the process. Arbitration is a voluntary process that can also be agreed upon after a dispute has arisen. However, to avoid any uncertainties, your lease agreement should contain a well-drafted alternative dispute resolution clause to include mediation and/or arbitration as the preferred form of dispute resolution.
An Example of a suitable arbitration clause depends upon whether the dispute is in the future or current for future disputes as drafted by the London Court of International Arbitration (LCIA) the following wording could be used using the LCIA rules which can be found here:
“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause.
- The number of arbitrators shall be [one / three].
- The seat, or legal place, of arbitration shall be [City and / or Country].
- The language to be used in the arbitral proceedings shall be [ ].
- The governing law of the contract shall be the substantive law of [ ].”
Alternatively, the CIArb Property Dispute Scheme can be used to resolve commercial property disputes, the scheme applies to both commercial and residential disputes and refers the dispute to arbitration, expert determination and or mediation. The applicable CIArb rules can be found here.
It would be prudent before an arbitration clause is drafted within your lease or agreement that legal advice is sought to ensure the mechanism used will be in accordance with the new Arbitration Rules for commercial property disputes and that the procedure and process is drafted with clarity. In the coming months we shall write again with an update on the rules once the details have been released, however in the interim you can speak to Avinder Laroya by clicking here
Benefits Of Arbitration In Landlord-Tenant Disputes
Arbitration provides legally binding remedies, it is a flexible and confidential procedure compared to Court litigation. Arbitral awards are binding and final which provides an overall quicker dispute resolution process than litigation.
Unlike litigation, arbitration is a flexible procedure where the parties can decide on the number of arbitrators, their expertise and skills, location, applicable law and seat of the arbitration. Arbitration awards are legally binding.
There are other ways a commercial property dispute can be resolved to include negotiation, mediation and arbitration. For a detailed discussion on the advantages of mediation and how to choose the right dispute resolution scheme for your business, please refer to our article on alternative dispute resolution here.
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