Businesses that accrued debt during the coronavirus pandemic will be protected by new insolvency measures, the Government has announced.

The legislation will introduce provisions to ringfence rent debt caused by “enforced closures” and set out a process of binding arbitration to be undertaken between landlords and tenants.

The policy paper comes after thousands of high street businesses were forced to shut during Covid-19, meaning many firms were unable to generate revenue and pay their bills. The British Property Federation (BPF) found that UK businesses had built up a combined £7.5 billion of commercial rent arrears by 30 June 2021 as a result of the pandemic.

According to the guidance, the new rules will only be used as a “last resort” where landlords and tenants have not been able to settle a dispute and come to a mutual agreement on how rent arrears will be paid.

The Government said the revised Code of Practice will be published ahead of the system being put into legislation to give landlords and tenants time to negotiate.

Commenting on the new rules, the Government said: “As soon as legislation is passed, the commercial tenant protection measures will only apply to ringfenced arrears. This includes rent debt accrued from March 2020 by commercial tenants affected by COVID-19 business closures until restrictions for their sector are removed.

“This means that landlords will be able to evict tenants for the non-payment of rent prior to March 2020 and after the end of restrictions for their sector and who have not been affected by business closures during this period.”

The new rules will come in addition to Section 82 of the Coronavirus Act 2020, which prevents landlords of commercial properties from evicting tenants for the non-payment of rent until 25 March 2022.

Click here to access the policy paper.

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