How the latest commercial rent rules could affect your P2P portfolio
Peer-to-peer investors backing loans to commercial borrowers may benefit from an updated rental code in the aftermath of the pandemic.
Commercial tenants were given a moratorium on evictions during the pandemic and it was left to landlords whether they expected rent to be repaid.
This could impact returns that investors who have backed peer-to-peer loans on commercial properties or businesses who have fallen behind on their rent during the pandemic.
A new Commercial Rent Code of Practice has been introduced under the Commercial Rent (Coronavirus) Act 2022 to replace the moratorium on evictions
Here is what could be happening to the loans in your P2P portfolio.
Ringfenced debt
The Act ringfences rent debt built up by businesses who were forced to close during the pandemic.
It only applies to rental debts or arrears from March 2020 until the date restrictions ended.
Debts accrued at other times will not be in scope.
Read more: Proplend boss welcomes proposal for government support on commercial rent
Can’t pay versus won’t pay
Where they can afford to do so, the Code states that a tenant should meet their obligations under their lease in full.
The code says a tenant cannot keep the doors of their business open if it comes at the expense of the landlord’s solvency.
However, tenants should not have to take on more debt – or restructure their business – in order to pay their rent.
The art of negotiation
The government is still encouraging negotiation between landlords and tenants.
Tenants experiencing temporary severe hardship because of the pandemic should feel able to approach their landlords to discuss and negotiate rent owing or other support available to them, according to the guidance.
Landlords are being told to consider a reasonable case put forward by a tenant and whether some temporary arrangement the landlord can reasonably offer might enable the tenant to survive.
Tenants will need to provide sufficient evidence to substantiate their need for assistance with rent such as their company’s financial information and business performance during March 2020.
Read more: Proplend chief backs BPF’s calls for an end to the rent moratorium
Arbitration
If neither side can come to an agreement, they can seek arbitration.
Either the landlord or tenant can make a reference to arbitration until 23 September 2022.
Arbitration bodies included the Chartered Institute of Arbitrators, Royal Institute of Chartered Surveyors, Consumer Dispute Resolution, Falcon Chambers Arbitration, Dispute Resolution Ombudsman, London Chamber of Arbitration and Mediation and The Consumer Code for Online Dispute Resolution.
The arbitrator will first consider if the dispute falls under their remit.
If it does, the landlord and tenant will have to submit their side of the argument for consideration.
The arbitrator will then consider the situation, although there is no clear guidance on how long this can take.
It can either give the commercial tenant relief from payment of the protected rent debt or to state that the tenant is to be given no relief from payment.
Where the arbitrator’s award gives the tenant time to pay an amount, including an instalment, the payment date must be within a period of 24 months beginning with the day after the date of the award.
Any arbitrator decision is final and binding.