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Arbitration of COVID-19 commercial rent debts – interplay with business interruption insurance

Posted on 17 November 2021

Much has been written about the arbitration scheme proposed in the Government's Commercial Rent (Coronavirus) Bill that was introduced to Parliament on 9 November 2021 (the "Bill"). The Bill was accompanied by a "Code of Practice for commercial property relationships following the COVID-19 pandemic" (the "Code"). (Read our Real Estate team's article on the Bill and Code.) The Ministerial Foreword to the Code explains that the Bill allows for the ring fencing of rent debt due from businesses forced to close during the pandemic and establishes a binding arbitration system to determine what will happen to that debt. 

In this article we consider whether the Bill will impact a landlord's ability to recover loss of rent under their business interruption ("BI") insurance. 

The Bill

The aim of the Bill is to enable relief from payment of rent under business tenancies "adversely affected by coronavirus" through arbitration if the debt cannot be resolved by agreement. 

In order for a tenancy to fall within the Bill's definition of being adversely affected by coronavirus, the whole or part of the business carried on by the tenant at or from the premises, or, the whole or part of the premises, must have been subject to a "closure requirement".  That term is defined as a requirement imposed by coronavirus regulations expressed as an obligation to: (i) close businesses, or parts of businesses, of a specified description; or, (ii) to close premises or parts of premises of a specified description.  The Bill will therefore apply not just to, for example, a restaurant whose premises were required to close, but also, again as an example, an events' planning business whose business was required to cease but its premises may have remained open.  

The Bill applies to rent for the period from 21 March 2020 to the earlier of: (i) 18 July 2021 in England or 7 August 2021 in Wales; or, (ii) the last day the business or premises was subject to a closure requirement.

Interplay with insurance

Many landlords will have notified claims for loss of rent to their insurers as a result of their tenants' failure to meet their obligation to pay rent. Often those policies contain non-damage BI extensions to the standard BI cover which provide cover in cases where loss has been suffered as a result of a notifiable disease within a certain radius or government ordered closure. The FCA Test Case determined whether 21 such extensions would respond to COVID-19 related losses or not, albeit real estate claims were specifically carved out of the FCA Test Case. There are a number of further cases currently going through the Courts which are addressing issues such as aggregation of claims and clauses not dealt with by the FCA Test Case. Therefore the pool of potentially applicable clauses may widen depending on the outcome of those cases, as may the sums that can be recovered. 

A landlord's claim under its insurance will therefore be dependent on whether its policy has a BI extension that should, in principle, respond to COVID-19. However, loss of rent insurance will not typically respond in circumstances where the rent remains payable but a tenant is not able to pay it. It is often defined as a loss of rent receivable. The argument run by some insurers is that rent is still receivable if the obligation to pay it under the lease remains in force. In support of that, there have been a number of summary judgment decisions where the Courts have held tenants are not relieved of the obligation to pay rent, despite the tenants arguing that they have been relieved of those obligations.  If rent is still technically receivable, then insurers' position is often that the cover is not triggered.

The Bill proposes that, where a landlord and tenant cannot reach agreement on the rent arrears, the parties enter into a legally binding arbitration. The outcome will determine the amount of rent payable. This is potentially relevant to a landlord's BI claim because the tenant will have a legally binding decision relieving it of its obligation to pay a proportion of the rent due.  As such, that proportion is no longer receivable. A landlord will therefore be able to provide its insurer with a legally binding award relieving a tenant of its obligation to pay a proportion of rent under the lease. While much will depend on the BI extension in the policy, the proposed arbitration scheme only applies to businesses that have been adversely affected by COVID-19. As such it may be easier to bring the claim within the relevant extension.


The Bill is only at its first reading in Parliament. However, should it become law, it is an interesting development in landlord claims under loss of rent policies. As ever, it will be crucially important for landlords to ensure their insurers are informed of steps taken in negotiations with tenants and proposals to arbitrate. Tensions may develop between, on the one hand, the clear encouragement by the Government for commercial parties to a lease to negotiate settlement of outstanding rent arrears and, on the other, the potential benefit to a landlord who may be covered under a loss of rent policy to pursue arbitration in order to obtain a legally binding decision setting out the sums a tenant cannot pay as a result of the pandemic.

Mishcon's insurance disputes team acted in the FCA Test Case for policyholders and has been advising landlords on recoverability of COVID-19 loss of rent claims under loss of rent policies. Mishcon's Property Litigation team acted for the successful landlords in the summary judgment application Bank of New York Mellon (International) Ltd v Cine-UK Ltd; AEW UK Reit Plc v SportsDirect.com Retail Ltd; AEW UK Reit Plc v Mecca Bingo Ltd [2021]. 

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