The Government has published a new code of practice for landlords and tenants to follow when looking to deal with outstanding rent arrears which accrued during the moratorium period, following the Covid-19 pandemic. The moratorium under the Coronavirus Act 2020 is set to expire on 25 March 2022 and the code provides some initial details of the binding arbitration process the Government is seeking to pass as law early next year.

The code of practice encourages parties to negotiate and find a settlement that suits both parties, without impacting on the solvency or viability of the other. The code of practice is designed to support parties through a binding arbitration which will come into force next year, along with the new Commercial Rent (Coronavirus) Bill. It should be noted that the new binding arbitration process will ringfence not just rent arrears accrued during the moratorium but also service charges and insurance. landlords will also be prevented from drawing down on tenancy deposits to recover outstanding ringfenced arrears and where they have already done so, any requirement for the tenant to top up the deposit will be suspended.

Whilst we are awaiting the Bill to become law next year, it raises several questions:

  1. How great an impact will the code of practice have in the interim? The code of practice is voluntary and does not affect the existing restrictions on forfeiture, winding up petitions and the Commercial Rent Arrears Recovery (CRAR) procedure, which will remain in place.
  1. It is further unclear whether the code will be viewed by the court as a further pre-action requirement for the parties. If so, and given there is an expectation from the court that parties will attempt alternative dispute resolution at some stage of proceedings, it is possible that the court might be prepared to penalise parties in costs if they fail to follow the code of practice.
  1. Further, given the binding arbitration process is not expected to come into force until, at the earliest, the end of March 2022, it is unclear how the court will deal with claims for arrears of rent incurred during the moratorium, whether they be currently underway or issued between now and March 2022.

On the other hand, where parties genuinely want to work together to find a solution, the code of practice would seem to only help facilitate an amicable resolution.

For a further explanation of the code of practice, the impact of it and the proposed Bill, look out for our ebriefing on the topics coming shortly.