The COVID-19 pandemic has had an immeasurable impact across a number of sectors over the last two years, not least the sports industry.
Impact of the pandemic
At the height of the pandemic, major tournaments, events and matches were cancelled or postponed, indoor and outdoor sports facilities, as well as non-essential sports retailers, were forced to shut, leaving stadiums and local sports clubs empty and leading to a significant reduction in revenue for those affected.
Local sports clubs and associations at the heart of grassroots sport in local communities will no doubt be amongst the hardest hit within the sport sector.
Steps taken by the government to date
The government was quick to recognise the impact of forced closures across the leisure, hospitality and retail sectors generally, and introduced a number of measures and grants to assist affected organisations.
Notably, in March 2020, the government limited landlords’ enforcement options in relation to non-payment of rent under commercial leases. The measures were extended several times throughout the pandemic and are due to be lifted at the end of March 2022.
Whilst some landlords and tenants have successfully negotiated agreements to settle outstanding rent debts, many still remain at loggerheads, with some heading towards court litigation. The government recognised this and in June 2021 announced that new legislation would be passed to support the resolution of commercial rent debts accrued during the pandemic.
The Commercial Rent (Coronavirus) Bill
The Commercial Rent (Coronavirus) Bill is due to come into force in March 2022. Once passed, it will “ringfence” certain arrears which fell due during the pandemic i.e., between 21 March 2020 and 18 July 2021 where business tenants were forced to close or were subject to restricted opening hours during the pandemic. “Arrears” includes rent, service charge, insurance rent, interest and VAT.
The new legislation will also introduce a binding arbitration scheme to determine if and how arrears should be repaid in an attempt to preserve viable organisations and the jobs and communities they support.
This will not affect agreements which have already been reached or rent that has already been paid and parties are still encouraged to reach their own agreements where possible, regardless of whether they will be caught by the new legislation.
Who will be caught by the new legislation?
Business tenants
“Business tenancies” are tenancies of premises occupied by a tenant for the purpose of its business. For example, a retail store selling sports merchandise from commercial premises would be a “business tenancy”. However, a “business” in this context also includes any activity carried out by a body of persons, including an unincorporated association. This means that local unincorporated sports clubs occupying premises for the purpose of promoting participation in sport in the local community would also fall within this definition.
The new legislation will not apply where a tenant owns the freehold of its premises (i.e., where the land is owned outright and there is no lease arrangement with a landlord). For example, a football club which owns its stadium would fall outside the scope of the legislation, but a football club which leases its stadium from a Local Authority (as is the case with a number of football clubs) would, on the face of it, be caught.
Lease v licence
Licences will not be caught by the legislation, nor will leases for a term of six months or less, although the fact that a document is labelled a “licence” does not necessarily make it so. It is the substance, not the form, of an agreement which is important. The test of whether occupation is by a lease or a licence is that, under a lease, a tenant has exclusive possession of the premises to the exclusion of others. A licence, on the other hand, is a mere right to occupy. Using a practical example, if a tennis coach hires a tennis court to provide coaching sessions every Tuesday and Thursday from 5pm – 8pm in exchange for a fee, but other coaches have use of the same court throughout the week, this is likely to be a licence and would fall outside the scope of the new legislation.
Key provisions in the new legislation
Arbitration
Broadly speaking, where a matter is referred to arbitration under the new legislation, an arbitrator will consider the proposals to resolve the dispute put forward by both parties and make a decision about how the dispute should be resolved in the form of an “award”. Any award should aim to preserve or restore the tenant’s business, so long as this is consistent with preserving the landlord’s solvency, although arrears should be paid in full where possible. Arbitrators will have the power to dismiss a referral, write off some or all of the arrears (including interest), and / or allow the tenant time to pay part / all of the debt over a period of 2 years. There is a prescriptive timetable under the new arbitration scheme – to find out more about the process and timings involved, click here.
Restrictions on landlords’ enforcement options for non-payment of rent
To allow parties further time to resolve their disputes, tenants caught by the new legislation will continue to be protected from landlord enforcement options in relation to ringfenced arrears, including, but not limited to, insolvency procedures and forfeiture (termination) of a lease for non-payment of rent.
Further measures will also be introduced preventing landlords from issuing court proceedings or drawing down on rent deposits in respect of arrears caught by the legislation.
The extended measures will be in place until either:
- 6 months after the date the legislation comes into force, where the matter is not referred to arbitration; or
- the day the arbitration concludes, where the matter is referred to arbitration.
Significantly, where a judgment on a debt claim for ringfenced arrears is given on or after 10 November 2021 but before the legislation is passed and comes into force, so long as the debt remains unpaid, the matter can still be referred to arbitration.
Being aware of how the new legislation might affect you is important so that you understand the extent of any rental liability and your cash flow position. This will be crucial for forward planning and will allow you to focus on getting back to business as we emerge from the pandemic.
We recommend that you:
- Consider whether you will fall outside of the new legislation – to assess whether the legislation will apply to your arrears dispute, click here to review our handy flowchart. If you fall outside of the new legislation, the extended restrictions on landlord enforcement options will not apply to you. This means that if you have outstanding arrears, in the absence of a formal concession agreement with your landlord, you are at risk of landlord enforcement action from the end of March 2022, including (but not limited to) forfeiture (termination of the lease) and court proceedings.
- Review any concession agreements negotiated during the pandemic. If these were time limited, consider whether these need to be extended or renewed to protect your position.
- Ensure that any concession agreements are formally documented in writing and reviewed by solicitors to ensure they are effective and binding.
- Check with Sport England and / or your National Governing Body as to whether there are any available grants that you may be eligible apply for to assist with cash flow.
Whether you are an unincorporated sports club operating at grassroots level or a well-established club or organisation occupying a sports pitch, if you occupy your premises under a lease, were forced to close during the pandemic and have an unresolved rent arrears dispute, we can help you navigate your options.
For more information, please contact Jessica Crowther or a member of the Property Litigation team.
