COVID-Era Commercial Rent Arrears: The UK Commercial Rent (Coronavirus) Act 2022 and Scotland’s Divergent Approach
The COVID-19 pandemic brought significant disruption to the commercial property sector across the United Kingdom.
Government-imposed lockdowns, trading restrictions, and public health measures left many tenants unable to meet their rent obligations, while landlords faced mounting arrears and uncertainty about enforcement.
In response, legislatures introduced emergency protections to manage the delicate balance between landlord rights and tenant survival.
In England and Wales, these protections evolved into a statutory arbitration framework under the Commercial Rent (Coronavirus) Act 2022. Scotland, however, chose a different route, eschewing arbitration in favour of allowing conventional enforcement methods to resume once protected periods ended.
Understanding this divergence is vital for commercial landlords, tenants, and practitioners dealing with arrears accrued during the pandemic.
The Commercial Rent (Coronavirus) Act 2022: England & Wales
The Act came into force on 24 March 2022 and established a legally binding arbitration scheme designed explicitly for pandemic-era rent arrears.
Its primary goal was to provide a fair resolution mechanism for landlords and tenants, encouraging the survival of otherwise viable businesses while recognising landlords’ rights to recover rent.
Scope of the Act
The Act applied to:
- Protected rent debt: Rent (including service charge, insurance rent, and interest) that fell due under business tenancies during periods when the tenant’s business was mandated to close or subject to trading restrictions.
- Geographic reach: England and Wales only.
- Eligible tenancies: Business tenancies under the Landlord and Tenant Act 1954 or other commercial arrangements where the tenant was adversely affected by COVID-19 restrictions.
Protected periods varied depending on the sector—for example, hospitality and nightclubs faced longer closure mandates than general retail, meaning the length of arrears covered by arbitration differed across industries.
Arbitration Process
The arbitration scheme was designed to be a quick and cost-effective alternative to litigation:
- Either party could refer a protected rent debt to arbitration within the statutory six-month window following commencement of the Act.
- Arbitrators considered evidence of both parties’ financial positions, balancing the tenant’s viability against the landlord’s solvency.
- Possible outcomes included full repayment, deferred payment schedules, or partial rent write-offs.
Limitations
- Only arrears from mandated closure periods qualified as “protected.”
- Rent accruing before March 2020 or after reopening dates was not covered.
- Landlords remained entitled to enforce non-protected arrears through traditional means.
Enforcement Restrictions in England & Wales
Before the Act, emergency measures were already in place to protect tenants:
- Forfeiture moratorium: Landlords were prohibited from forfeiting leases due to non-payment of rent between March 2020 and March 2022.
- CRAR restrictions: The minimum amount of arrears before landlords could exercise Commercial Rent Arrears Recovery was temporarily increased.
- Insolvency limits: Statutory demands and winding-up petitions were restricted for rent arrears related to the impact of the COVID-19 pandemic.
The 2022 Act effectively drew a line under this temporary protection. Once the arbitration window closed, landlords regained full enforcement rights for arrears outside the Act’s scope.
Scotland’s Approach: No Arbitration Scheme
Scotland adopted a markedly different stance. While temporary protections against eviction and debt enforcement were put in place during the pandemic, the Scottish Government did not legislate for a statutory arbitration scheme akin to the Commercial Rent (Coronavirus) Act 2022.
Temporary Protections in Scotland
During the height of COVID-19:
- Landlords were restricted from terminating commercial leases for non-payment of rent.
- Debt recovery actions were temporarily limited to provide breathing space for businesses.
- These measures were time-limited and linked directly to public health restrictions.
Return to Conventional Enforcement
Once the protected periods ended:
- Landlords could pursue arrears through traditional remedies, including irritancy (the Scottish equivalent of forfeiture), court action, and summary diligence.
- There was no statutory mechanism for arbitration or forced compromise between landlords and tenants.
- Any relief or restructuring of arrears was left to negotiation or court judgment.
This approach reflected Scotland’s preference for contractual certainty and reliance on existing landlord-tenant remedies rather than creating a parallel arbitration framework.
Comparative Outcomes: England & Wales vs. Scotland
The divergence between jurisdictions produced different outcomes for landlords and tenants.
England & Wales
- Tenants in viable businesses benefited from structured relief, with arbitrators empowered to reduce or defer rent.
- Landlords had to accept potential write-offs of arrears but gained certainty through a statutory process.
- The arbitration scheme provided a neutral forum, avoiding prolonged litigation and preserving commercial relationships.
Scotland
- Landlords regained enforcement rights more quickly once restrictions expired.
- Tenants unable to pay arrears relied solely on landlords’ goodwill or negotiation leverage.
- The absence of arbitration meant that disputes often reverted to the courts, potentially increasing costs and leading to adversarial outcomes.
Implications for Landlords
Commercial landlords across the UK needed to adapt to the distinct legal frameworks:
- In England & Wales:
- Landlords had to prepare financial evidence for arbitration and accept that awards could include rent reductions. They could only pursue enforcement for arrears outside protected periods or for debts not referred to arbitration.
- In Scotland:
- Landlords were able to act decisively after protections were lifted, but they also bore the commercial risk of tenant insolvency. Strong tenant communication and flexible negotiations often proved more productive than immediate enforcement.
Implications for Tenants
Tenants’ strategies also diverged by jurisdiction:
- In England & Wales:
- Tenants could initiate arbitration, giving them leverage to restructure arrears and continue trading. However, the scheme was time-limited, and failing to act within the statutory window meant losing this protection.
- In Scotland:
- Tenants had no arbitration safety net. Survival often depended on negotiating concessions directly with landlords or accessing government support schemes during the crisis. Once protections expired, tenants faced the full weight of enforcement.
Lessons Learned from the COVID-Era Rent Response
The pandemic highlighted the delicate balance between supporting businesses and protecting property owners’ rights. Key takeaways include:
- Flexibility in crisis: England and Wales’ arbitration model demonstrated how structured intervention can prevent mass insolvencies, albeit at the expense of losses to landlords.
- Contractual certainty vs. intervention: Scotland’s reliance on existing remedies underscored the risks of leaving resolution entirely to market dynamics.
- Future resilience: Both approaches revealed the need for clear frameworks to manage rent arrears during systemic shocks, ensuring fairness across the property sector.
FAQs
What is “protected rent debt” under the Commercial Rent (Coronavirus) Act 2022?
It refers to arrears accrued during mandated closure periods when a tenant’s business was legally restricted from trading due to COVID-19 regulations.
Did the arbitration scheme apply in Scotland?
No, Scotland did not adopt an arbitration scheme. Once temporary restrictions ended, landlords could pursue arrears using conventional enforcement.
Can landlords in England and Wales still pursue COVID-era arrears?
Yes, but only arrears outside protected periods, or protected arrears not referred to arbitration within the statutory timeframe.
What remedies are available to Scottish landlords for COVID-era arrears?
They may use irritancy (lease termination), court action, or diligence for debt recovery, subject to ordinary legal rules.
What if tenants in Scotland were unable to pay during protected periods?
They relied on negotiated arrangements with landlords, as no statutory scheme compelled them to make compromises.
Conclusion
The treatment of COVID-era commercial rent arrears reveals how differently UK jurisdictions balanced tenant survival and landlord rights.
In England and Wales, the Commercial Rent (Coronavirus) Act 2022 established a structured arbitration pathway, offering fairness while also encouraging compromise.
Scotland, by contrast, allowed normal enforcement to resume once public health restrictions lifted, leaving arrears resolution to negotiation and the courts.
For landlords and tenants, these differences underscore the importance of understanding jurisdiction-specific rules. While the pandemic measures are now historic, the lessons they offer will inform how future crises are managed across the property sector.
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Useful External Links
https://www.legislation.gov.uk/ukpga/2022/3/contents/enacted
https://www.gov.uk/government/publications/commercial-rent-coronavirus-act-2022-arbitration-scheme
https://www.gov.scot/publications/coronavirus-covid-19-business-and-property-support-in-scotland
