Commercial Rent (Coronavirus) Bill
Wednesday 24th November 2021
(3 years ago)
Commons ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move, That the Bill be now read a Second time.
We have made some incredibly difficult decisions, including closing certain businesses, to stop the spread of the virus during the covid pandemic. To minimise the impact on businesses, we have put in place temporary measures to stop evictions of commercial tenants for unpaid rent, restrict landlords’ ability to seize goods to recover rent owed, and prevent landlords and other creditors from instigating certain insolvency proceedings. While those measures offered much-needed protections, they also meant that in many cases rent on commercial premises went unpaid and businesses accrued significant rent debt, estimated to be £6.97 billion across the UK over the pandemic.
We are already seeing the economy bounce back, but now we need to begin the work of preparing for a new economy post covid. We cannot draw a line under covid, however. Understandably, it has not been possible for many businesses to pay the rent debt that accumulated during the pandemic. Over the past year, we have therefore worked closely with business leaders to find a solution to that accumulated debt.
In June 2020, the Ministry of Housing, Communities and Local Government published a voluntary code of practice that encouraged landlords and tenants to work together to negotiate and resolve that unpaid rent. I am reassured by the fact that many tenants and landlords have used the code. The indications are that overall rent collection is increasing but remains below average levels, especially in certain sectors.
There are cases in which negotiation is not working. The Bill will support landlords and tenants who cannot otherwise agree in resolving disputes relating to the rent owed. It will protect rent debts built up by businesses required to close during the pandemic. It will establish a new binding arbitration process that aims to find a proportionate solution that will provide commercial tenants and landlords with the clarity and certainty that they need to plan ahead and recover from the pandemic.
The Government have published an updated code of practice that sets out what the arbitration process will look like, the kind of evidence that will be considered and the key principles to which the process will adhere. The code can be used by any business to help it to negotiate and resolve rent disputes, even if it falls outside the scope of the Bill.
The Bill will protect jobs and enable a swift return to normal market operation. I make it clear that it covers only rent debt that it is attributable to the period from 21 March 2020, when restrictions on business began, until restrictions for the relevant sector were lifted, which generally happened over the spring and summer of 2021.
We believe that it is important that the Bill is targeted to support the businesses that most need it and provide swift resolution to remaining disputes, so it applies only to those tenant businesses that were mandated to close during the pandemic. They are the parts of our economy that were hit hardest, including restaurants, pubs and high street shops; the rent collected from those sectors is still lagging behind other parts of the economy. The income from many businesses in those sectors, even after they have opened their doors again, will not yet be back to normal. Many businesses will therefore have been unable to build up the cash reserves needed to pay off rent debt.
These efforts to support businesses, largely in the hospitality, personal care and non-essential retail sectors, will particularly benefit women, young people and people from ethnic minority backgrounds because of the higher ratio of persons from those groups who work in those sectors.
The primary purpose of the Bill is to implement a simple, binding arbitration system to resolve those outstanding rent debts. A tenant or a landlord can refer a case to arbitration at any time within six months of the Bill’s coming into force, and propose a solution to the protected rent debt. Arbitrators appointed by arbitration bodies approved by the Secretary of State will review proposals and then assess evidence from both parties to determine whether any relief from payment of the debt is appropriate. That could include a reduction from the total amount to be paid, cancellation of the debt, or an extension of the time period in which it should be repaid. The arbitrator will make an award, and if granting relief from payment of a protected rent debt is appropriate, the award will set out the terms.
The arbitrator must follow the principles established by the Bill. One key principle is that awards should only be made for viable businesses, or those that would become viable with an award of relief from payment. For example, a business could be granted an award that reduced the amount of debt owed if that reduction would allow it to become viable again. In this way, we are actively supporting businesses that will continue to prosper and grow, will provide jobs and will help the UK to build back better.
Mr Toby Perkins (Chesterfield) (Lab)
Will the Minister expand a little on how he expects the viability test to be met? It is obviously extremely important. During the pandemic, many businesses that applied for bounce-back loans and the like were told they could not have the loans because they were potentially unviable owing to the coronavirus. How is the arbitrator meant to assess whether a business is viable?
Paul Scully
I know that the hon. Gentleman is a champion of pubs throughout the country. We will be looking at those and at the hospitality sector in general.
The arbitrator will be able to take evidence from both sides—the Government will not be taking a doctrinal approach—and look carefully at the books and the profit to establish whether this is just the rent debt that occurred during that period of closure, rather than any other debts that the business might have. He or she will have a narrow focus.
Mr Perkins
I welcome the Bill—it is important that action is taken, even if it is retrospective—but often the very fact that the rent had to be found will have had impacts on other parts of a business’s funds. As the Minister works through the Bill, will he look carefully at the guidance to ensure that it does not shut out many businesses that could benefit?
Paul Scully
Throughout the Bill’s progress, we will continue to engage with Members on both sides of the House, but also with landlords and tenants. We want to make this work, and to resolve these issues speedily but in the most appropriate way. That is in the interests of landlords and tenants. We hope that the fact that the legislation has been announced and we are taking it through the House will send a strong signal to landlords and tenants and they will not have to rely on this in the first place; we would love it if people had the conversations and resolved the issues. Landlords want their units to be filled, and tenants want to ensure that they can continue in a reasonable way, and if they can pay they should do so, as they are at the moment, because the Bill relates only to a particular period of closure.
An arbitrator should not make an award if it would make the landlord insolvent. This works for both tenants and landlords, and support for businesses must not be to the detriment of a landlord’s solvency. The Bill also makes it clear that, if commercial tenants can afford to pay the rent debt without becoming unviable, they should pay. The arbitrator will consider financial records, and any other evidence considered appropriate to determine the viability of a business or the solvency of a landlord. We have engaged with arbitration bodies to develop this approach, and I am confident that it will deliver swift resolution for tenants and landlords locked in disputes. Officials’ engagements with potential arbitration bodies has also raised awareness of our proposals, with the intention that, if Members of both Houses approve the Bill, the system will be set up and ready to go quickly.
I have already mentioned the protections that the Government rightly provide to stop commercial tenants being evicted or their businesses being wound up owing to rent debt during the pandemic. The measures introduced during the pandemic were designed to be temporary, offering much-needed respite to businesses unable to trade. We have already extended protections to continue to support businesses as needed, and to provide the time required to draft the legislation and put it before both Houses for consideration. In place of those measures, the Bill establishes a targeted intervention.
While parties are able to refer cases to arbitration within six months of the Bill’s coming into force, and while arbitration is in progress, there will be restrictions on evictions, seizing of property and other measures of enforcement, and certain insolvency proceedings in respect of protected rent debt. That ensures that the parties who cannot agree have a chance to use this arbitration system to resolve protected rent debt before resorting to other legal remedies. I am confident that six months is enough time to allow tenants and landlords to apply for arbitration, but the Bill allows for the period to be extended if there is evidence that it is not long enough.
Throughout the development of the Bill, the Government have engaged extensively with tenant and landlord representatives. We launched a call for evidence in April, which gathered the views of tenants and landlords on the current protections and the voluntary negotiation approach, and asked for preferences on options for further solutions. The feedback was that while negotiations were taking place their voluntary nature was actually hindering progress in some cases, and nearly half the respondents said they agreed that a system of binding adjudication would resolve the outstanding rent debt. Since those findings, we have continued to work closely with business and landlord representatives to help shape the Bill and support negotiations, and, as I said to the hon. Member for Chesterfield (Mr Perkins), we will continue to do so throughout the Bill’s passage.
I have regularly met businesses and landlord representatives to discuss these proposals, and the issue of rent debt in the affected sectors in general. Following the Bill’s introduction, we have received support from several bodies representing commercial tenants and landlords. They recognise the efforts the Government are making to encourage continued negotiations, and that a system must be in place to be used when negotiations fail.
We have also had productive engagement with colleagues from the Welsh and Scottish Governments and the Northern Ireland Executive, and I thank them for their continued input and support. I have written to the Ministers from the devolved Administrations to inform them of the relevant aspects of the Bill and seek legislative consent where it is required.
The Bill provides a solution that should be used only when parties have been unable to reach agreement between themselves. We are still adamant that tenants and landlords should negotiate where possible, but we recognise that some may never reach agreement on what is owed and how it should be repaid. The protections that the Government implemented during the pandemic have been extended to give the time needed for these negotiations. They have offered much-needed respite for businesses fearing eviction and bankruptcy, but they cannot continue forever, and we must act to help the market get back to normal.
I am sure the House agrees that leaving this rent debt unresolved would be detrimental to UK businesses and landlords, and indeed to communities. I am glad to see that the economy is bouncing back, but it is unreasonable to expect all businesses to be able to pay off immediately all the rent debt that they accrued when they were closed. We have heard from businesses and from landlord representative groups that the voluntary approach will only get so far, and that a binding arbitration system will work to unblock this issue. The Bill will put an end to the temporary protections and clear up the unpaid rent debt that is stalling commercial tenants and landlords and preventing them from prospering. I commend it to the House.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I thank the Minister for his speech and for introducing the Bill. Let me reassure the House that I hope to make a slightly more cohesive speech then the Prime Minister managed on Monday when he spoke to the CBI about the Government’s approach to business, but Members are welcome to intervene if I do start making car noises or talking about Peppa Pig.
We generally welcome the Bill, and it will be welcomed by retail businesses up and down the country, because it creates an arbitration process for disputes between landlords and commercial tenants on rent arrears caused by enforced closure during the lockdowns, and also the subsequent impact on businesses’ income and their ability to meet their outstanding rent demands, including outstanding service charges. It also restricts enforcement action for the recovery of rent arrears debt through the county courts for six months.
We accept the need for a fair arbitration process that deals with commercial rent arrears, and the need to ensure that that process works. There are some aspects on which we will seek further information, but before I come to them, I want to address the context in which this short and specific Bill is being introduced. Until this morning, we understood that it was to be a joint Bill between two Departments. It will not surprise the House to know that, as a shadow Levelling Up, Communities and Housing Minister, I shall be responding to the Minister as though he were the Communities Minister, because there are a number of aspects of communities and levelling up that I wish to address.
Janet Daby (Lewisham East) (Lab)
My Lewisham East constituency has among the largest number of small businesses in London. Brilliant councils such as mine, the Borough of Lewisham, can only go so far in supporting small businesses, especially when their budget has been cut by the huge amount of 63% since 2010. What businesses across our country really need is the Government to see them through this very difficult ongoing period, and they need a recovery plan in place.
Ruth Cadbury
My hon. Friend is absolutely right. This Bill is specific and closely drawn and, as I will go on to say, there are a lot of other challenges still outstanding for businesses and the communities in which they sit that the Government need to be working on as well.
We of course recognise how tough the last 20 months have been for so many businesses and the pain of the pandemic has impacted across the economy, but it has been particularly hard on small businesses, especially family-owned businesses which are anchored in their communities—businesses that have spent years, even decades, doing the right thing such as supporting their staff and investing in their skills, and putting back into the local area. There are countless examples of businesses who have always done the right thing, and who saw a downturn after they followed public health regulations and they closed.
I of course acknowledge the support that the Government provided for businesses during the pandemic —bounce back loans, VAT deferrals, rates relief, the furlough scheme, and the rents-based schemes—but too many businesses missed out on many of these schemes: those refused loans because their bank was not on the Government-approved list; or supply-chain businesses to sectors such as hospitality whose customers were required to close but they were not. They missed out.
Despite the relief schemes, many are still struggling; loans and VAT deferrals still have to be repaid, and those not yet making a profit are still required to pay their bounce back loan. Labour has sought to amend the rules so that a business has to repay its loan only when it is making money. The pain has been particularly hard on small independent businesses and family-owned businesses, which are anchored in their communities, and many sectors—such as the arts and events, and, particularly in the constituency of my hon. Friend the Member for Feltham and Heston (Seema Malhotra), travel and tourism—still face great uncertainty for months and years ahead.
On businesses that could not cope and had to close, in too many areas there are now vacant windows; there is no demand to take on the vacant premises. Of course the pandemic is not solely to blame for retail premises remaining vacant for long; the change in our shopping habits towards more online and less in-person has a major part to play, and in areas where a large proportion of people are impacted by the triple whammy of rising costs of living, the cuts to universal credit and the permanent or temporary loss of jobs, it is no wonder that retail businesses are particularly struggling when too many people have not enough money left over in their pockets at the end of the month.
The commercial rent arrears built up for businesses that had to close during the lockdowns are only one part of the challenge facing businesses across the country, so although we welcome the Government’s taking action through this Bill, there is still so much more that they could do. For a start, they must address our outdated business rates system, under which similar sized shops pay vastly different rates and revaluations.
Mr Perkins
I am grateful to my hon. Friend for talking about the fact that although we support the Bill in its narrow terms, it could have offered much more, and particularly grateful for her making the point about business rates. I remember being in the shadow business Department team back in 2014, and the Government were promising to change the business rates system back then. We have had any number of talks about it since, and so many businesses on the high streets know how unfair the regime is, yet we still have not had that action. Does my hon. Friend welcome the announcement of my right hon. and learned Friend the Member for Holborn and St Pancras (Keir Starmer) that a future Labour Government will address this unfairness?
Ruth Cadbury
My hon. Friend anticipates what I am about to say: this is about not just similar sized shops paying vastly different rents, but revaluations that result in exorbitant rises—by 200% for a business in Brentford in my constituency. Yet again the Chancellor has kicked the can down the road on business rates reform, as his predecessors have done before him. Businesses cannot afford the further dither and delay that we keep seeing from this Government, and of course I welcome the announcement by my right hon. and learned Friend the Member for Holborn and St Pancras (Keir Starmer) and my hon. Friend the Member for Leeds West (Rachel Reeves) that Labour will abolish the outdated business rates system and replace it with a fairer system that creates a more level playing field and breathes life into our high streets.
Then there is the Chancellor’s latest tax hike, a 1.25% increase in national insurance contributions, a double-whammy attack on our businesses; just when they need support, this Government decide it is time for a tax hike.
Then there is the permitted development rights changes and the impact that they will have, and in some cases already have had, on our town and village centres. The geographical hearts of our communities are threatened, particularly with the most recent changes brought in on 1 August that will make it easier for high street shops and businesses to be converted into poor-quality slum housing, with local communities and councils powerless to stop it.
I will finish by touching on a few areas where we would want to ensure further scrutiny of this proposed legislation as it moves forward. First, on the levels of arbitration fees, we know how tough things have been for businesses and want to ensure that they are not pushed over the edge with excessive fees in the new system. Secondly, as has been mentioned, there is the question of the viability of businesses and how they are assessed. Many businesses, especially those reliant on international travel and in other sectors that have been impacted in the long term by coronavirus, are still facing business slowdown even today. So I hope the Government will put in place a fair and reasonable assessment of viability, ensuring no business that can survive is left behind.
Thirdly, there is the issue of transparency and consistency in the arbitration and appeals process and how we can ensure a fair balance in the system between landlords and tenants. Finally, we seek assurance on whether a brand new, fully operational arbitration process can be in place by March next year. These are all areas that need more scrutiny and where the Opposition will make sure the Bill as it progresses works for businesses up and down the country.
To conclude, I reaffirm that we welcome the Bill and the arbitration process it creates for businesses who were in rent arrears through the pandemic closures, but the Government must not see this as the only action they still need to take: businesses up and down the country have had such a difficult 20 months that they need a Government prepared to do more to support them.
Matt Rodda (Reading East) (Lab)
It is a pleasure to speak in this important debate. I welcome the Bill but want to echo the words of my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) by raising a series of important questions about how it will operate, in particular whether the Government’s desire to set up the arbitration work so quickly is realistic given the pressure on the business and public sectors at this time. I also want to draw the Minister’s attention to a number of related points that I wish were dealt with in the Bill, in particular physical retail businesses being treated fairly in comparison with online businesses.
At the outset, I want to put on record my support for our small businesses: they are the lifeblood of our economy and it is vital that all political parties support them. As the Reading and Woodley MP, I am currently running a campaign asking our residents to nominate their favourite small business, and I encourage other colleagues to do the same, because it is important for us to show our support for the small—and indeed the large—business sector after what the country and the world have just been through.
I would like to raise the issue of retail in Reading, and to encourage the Minister to look into the wider issue of the balance of Government policy in favour of online retail versus physical retail. As a London MP, he might know that Reading is the retail centre for central southern England. Retail generates thousands of jobs in our community, many of which are highly skilled, long-term jobs. People enjoy their work deeply and are passionately committed to retail. As my hon. Friend the Member for Brentford and Isleworth rightly said, the role of retail in place-making and establishing vibrant town and city centres is fundamental. I would like to ask the Minister, when he responds to the debate and in his further consideration of the Bill, to remind the House of the work that the Government are doing to level the playing field between online businesses, which seem to have so many advantages these days, and physical businesses. Physical businesses are referred to in the Bill, which deals with the issue of rent arrears, but I believe that there is much more work to be done and I urge him to address that when he speaks.
In particular, I would like to draw the Minister’s attention to an issue that I have mentioned to him before, and for which I believe he has some sympathy. That is the need to have physical bank branches in local centres. This issue has been raised in relation to rural communities, but it is also an issue in many urban and suburban areas and in larger villages.
Janet Daby
My hon. Friend’s comments are also pertinent to my area, where we have seen so many local banks close. That has caused a great issue for people in my local community, because they now need to travel further to different parts of the constituency and the borough, and the queues are longer. For older people and people who find it difficult to move around freely, this adds an additional burden, as well as having to wait longer in the queue. I am really frustrated by it. It is a serious issue when local banks have to close, because it has such an impact on so many people in our community. The Government really need to see what more they can do to support local banks. I really hope that local banks are listening to my hon. Friend’s speech and to what I have just said.
Matt Rodda
I thank my hon. Friend for her comments. She has stolen part of my speech, but she has done so very graciously.
Branch closures are an issue in suburban areas, as the Minister knows well. Travel times can be considerable at busy times of the day, and there are access issues for elderly and disabled people. Another important point that I am sure my hon. Friend the Member for Lewisham East (Janet Daby) would have made had she had the chance is that many small businesses are still receiving their takings in cash and they need to bank that cash safely. They want to be able to go to a physical bank to do that. I understand that the Department is doing some interesting work looking at pilots for shared services for banks in rural areas, and indeed there is a pilot in Essex. Perhaps the Minister can update the House later when he speaks on this important issue. It is of great concern to many local small and medium-sized enterprises in Reading, Woodley and many other areas across the country and I hope that he will be able to address it. I also hope that he will encourage the banks to work together to ensure that there is interoperability of IT systems and other back-office functions so that they can support each other and support our small businesses. They really should be focusing on this important issue at this time.
I would also like to draw the Minister’s attention to some related points, some of which have been mentioned by my hon. Friend the Member for Brentford and Isleworth. It is important, as we consider how to support small businesses at this difficult time, to look at the issue in the round and consider other aspects of support that the Government should in my view be offering. First and foremost, there are small businesses, many of which are micro-businesses, that missed out during the pandemic, and I would like the Government to look again at the issue of those businesses that were left behind. They include those that were set up in all good faith at the start of the pandemic but did not have three years of accounts and were therefore unable to claim any support. There are a number of other worthy and worthwhile groups that deserve further attention from the Government, and I ask the Minister to address the matter when he speaks later. This is a matter of huge significance to many of my constituents. I have had constituents in tears while speaking to me about this issue on the telephone, but unfortunately I was unable to offer them any help because of the limitations of Government policy.
In addition, I would like the Minister to speed up the work on business rates. We are calling for the current system to be scrapped. My hon. Friend the Member for Leeds West (Rachel Reeves) has spoken powerfully on this issue. It is deeply unfair that physical businesses are being asked to pay high levels of business rates while other competitor businesses in out-of-town locations or online are not being asked to pay the same level of business rates. That cannot be right, and it is not fair. I hope that the Government will address this point, and that the Minister will address it later today.
I would also like to pick up on the importance of rail and other transport infrastructure. The area that I represent is very lucky to be the western terminus for Crossrail, and we are already seeing enormous transformational change across the Thames Valley—and, I am sure, in Kent and Essex as well—as better rail connectivity brings people into town and city centres. Many towns and cities are being rebuilt significantly because of this investment, and if this is good enough for the south of England, I hope the Minister will urge his colleagues to think again about HS2 and the number of cities and towns that have been left on one side as a result of the Government’s announcements earlier this week.
We can see the benefits of the infrastructure in our parts of the country, and we would like other towns and cities around the country to share in the regeneration renaissance that comes from sound investment in public transport leading to better connectivity. That investment spurs retail and the leisure and hospitality industry, and it is also crucial to sectors such as IT and other knowledge-based sectors of the economy. We have huge growth in that area in the Thames Valley, with businesses relocating to Reading purely because of its connectivity, and I urge the Minister to treat the north of England in the same way that previous Governments, including the Labour Government prior to 2010, treated the south.
Sarah Olney (Richmond Park) (LD)
The Liberal Democrats welcome the Bill and we hope it will be passed swiftly in order to protect struggling businesses. I have spoken to many businesses in my community that have really struggled with rent bills over the past 20 months. This is been a significant issue for many. As the Minister said, many landlords and tenants have been able to come to terms and make arrangements for how rent payments will be made, but a number have not been able to do so. I am thinking in particular of Don Fernando’s restaurant in Richmond High Street, a legendary Spanish restaurant right by the railway station that has been there 30 years. It was unable to make such an arrangement and it is still getting rent demands from its landlord, which is registered in Jersey, unfortunately. This is a significant issue for the restaurant. Only the stay of execution allowed by the moratorium on evictions has enabled it to carry on trading. It is still open and I was there a few weeks ago. It is doing well, but it has significant concerns about its rent debts, so on its behalf I very much welcome the steps that the Business Department is taking.
Of course, this affects not only tenants. I have spoken to landlords as well, including small landlords and landlords of single units. In some cases, where they are letting those units out to large multiples, some of those retail chains are just turning round to those landlords and saying, “We are not paying.” Up to now, there has been no mechanism to enter into a negotiation on this. It is very much the weaker party in these transactions that has to suffer the consequences, and on that basis I am really glad that this arbitration mechanism is being brought in. It will give a voice to both sides, particularly where there are no other mechanisms to resolve the issue.
My only slight grumble is that we could perhaps have passed this Bill sooner. The moratorium has been extended several times, which has been welcome, but bringing this Bill to Parliament more promptly would perhaps have allayed some fears and got the process going sooner for certain tenant-landlord relationships. But better late than never, as they say. It is here now and we certainly plan to support it. I hope that we will use this opportunity, even though we want to pass the Bill swiftly, to scrutinise it a bit further. One of the important points we want to raise is how arbitrators can effectively assess whether a business would have been viable. That is an important point, and we need to see more discussion about it. In the context of the pandemic, many businesses had to close because of Government instructions, but consumer behaviour has also changed radically as a result of the pandemic. As we look back over the past 20 months, I do not know how easy it will be to say which businesses would have been viable if their rent arrears had not built up to such an extent.
There are lots of great businesses in my constituency that came through the pandemic because they changed their way of working, including developing their online offering and doing home deliveries. We see right across our business sector, particularly in our small businesses, that entrepreneurs will always respond to challenges. Many businesses now look quite different from how they looked before, which is an example of how it is difficult to say what would or would not have been viable. Many business owners or their family members have suffered coronavirus infections, and they suffered untold disruption in their personal life that will have affected their ability to run their businesses. Again, how can we judge what would have been viable? How would things have been different? That is a difficult question to answer.
I welcome this further support to help businesses through what we might call the after-effects of lockdown.
Mr Perkins
The hon. Lady raises an important point. From what the Minister said, it sounds like a business will be eligible if the amount it owes in rent is the difference between going bust or not. Many businesses might have major rent payments that take them right to the brink, going through all their savings; other businesses might have debts that are slightly more than their rent, but the support would make a huge difference. I fear we may end up with a huge number of businesses being shut out of this important redress, so I urge her and other colleagues to scrutinise this point in Committee.
Sarah Olney
That is exactly right, and it is the point I am trying to make. Every context and every business is different. The business owners will have faced different challenges, and the environment in which they trade will have faced different challenges. The hon. Gentleman has already spoken about hospitality businesses facing significant challenges, and it is difficult to see how we can have one set of guidance that covers the viability of every kind of business of every size and every sector.
Janet Daby
In that same vein, small businesses, and even large businesses, have seen a surge in energy costs and product costs. Does the hon. Lady agree that there is increasing financial pressure on businesses?
Sarah Olney
I absolutely agree. We see a maelstrom of different pressures on businesses at the moment, and many of my retail businesses are experiencing difficulty in getting stock for a number of different reasons, many of which will be familiar to Members. There are increased energy costs, and we are still facing quite an uncertain Christmas.
Hospitality businesses across the country are keen to open their doors to Christmas parties, but there is still a lot of uncertainty about the public health situation, which will prevent many of them from being able to make the revenue they would expect. That will obviously have an impact on their ability to pay their debts. As the hon. Member for Brentford and Isleworth (Ruth Cadbury) said, it is not just their rent debts; they have VAT bills, rates bills and loans to repay. There are so many different debts mounting up as a result of lockdown, and there is still a great deal of uncertainty, coming from a number of different sources, on whether businesses can count on the revenue to service all those debts. There are a lot of pressures facing businesses.
Matt Rodda
Does the hon. Lady agree that the Government need to get on top of the supply-chain issues, particularly in our ongoing relationship with the European Union, the issues in Northern Ireland and the cross-channel issues? These could potentially have a serious impact on businesses and families this Christmas. It is high time the Government got on with developing a positive relationship with our neighbours.
Sarah Olney
I entirely agree. I would now normally be at the Public Accounts Committee, which is currently looking at the readiness of UK ports for Brexit, how well our port and logistics sectors are dealing with Brexit and how well the Government have prepared them. The picture is mixed, but there is no doubt that there is more disruption to come, because we have not yet implemented all the checks that will be required in due course. Some will come in on 1 January, and there will be others in July 2022. It is fair to say that we are still not through this huge period of uncertainty, and there is a great deal more still to come.
I welcome this Bill, but I would like to see the Government do more to help our retail, hospitality and personal services sectors, and all the other sectors that make up our high-street economy, because of all the positive impacts a thriving high street has on our local communities. I want to see the Government go a bit further to support businesses on our high street.
I am keen for the Government to consider scrapping the upward-only rent review clause that is often in new leases. Richmond High Street, in particular, is suffering from this clause. We now have very high rents for all our retail units, which is a private sector matter but we are finding that it creates a barrier to entry for new retail, hospitality and other businesses that might want to take up a town centre lease.
Leases are based on old-fashioned ways of doing business, and we often find that landlords put an upward-only rent review clause in leases. When the lease terms are renewed, the clause means that a firmly established business that has generated a great deal of business as a result of its location will find that its landlord puts up the rent to such an extent that the business cannot service it with its revenue. I am keen that leases and rent payments should reflect underlying market conditions, which would help a huge amount. More needs to be done. We talk about leasehold reform a lot in this place, but I also want to see it for commercial rents. I would welcome the scrapping of upward-only rent reviews.
I echo the hon. Members for Chesterfield (Mr Perkins), for Reading East (Matt Rodda) and for Brentford and Isleworth (Ruth Cadbury), who mentioned the business rates review, which is urgent because we want to help businesses to have better control of some of the costs of doing business. There is no doubt that business rates are a key part of that, and we are keen to see a review as soon as possible. A review has been promised for many years, and business rates are a fundamental part of the business costs that are continuing to be a deterrent to new entrepreneurs.
We very much support the Bill, which is the right thing to do. We want to support our town centre businesses, and there is more that could be done, particularly on rent and rates. We are keen to support the Bill, but we need to scrutinise the arbitration clauses a little further.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to wind up this debate, although I am sorry that the Minister has both had to open and close.
I want to recognise some of the contributions to this debate. My hon. Friend the Member for Chesterfield (Mr Perkins) and the hon. Member for Richmond Park (Sarah Olney) raised the important definition of viability and the considerations around it. My hon. Friend the Member for Lewisham East (Janet Daby) mentioned how we need to make sure that all our businesses are supported through the pandemic and into the recovery, which will continue at different paces for many businesses. My hon. Friend the Member for Reading East (Matt Rodda) also talked about the wider context and about supporting and championing businesses, which Small Business Saturday will be doing in the run-up to 4 December. It was eye-opening to be out with them in Southampton earlier this week. This is important in the context of what we are discussing today.
As my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) said at the beginning of the debate, Labour supports this important Bill, although we are surprised it has taken this long to introduce it following the announcement in the summer. We need to talk about the context because the growing cost of business will have an impact on how businesses pay back their rent. We have had an important set of contributions on the urgent need for reform of business rates, which the Labour party has also called for, and for it to be considered alongside a much fairer taxation system to bring in a much more level playing field between online businesses and businesses in our communities.
We are having this debate in an important week, as we know that business needs the Government to be on its side—perhaps the Minister will not be able to say anything about that. That is an incredibly important part of how we go forward and work towards the recovery—we are just at the beginning of that. The Prime Minister’s embarrassing speech to the CBI at the start of the week was an issue because confidence in the Government is knocked when the Prime Minister does not give a speech that suggests they understand the challenges businesses are facing and the crucial nature of getting the recovery right to make sure that it is sustainable.
The Bill will legislate for a binding arbitration process to be used where business landlords and tenants cannot agree on how to deal with outstanding rent arrears. It also expands on existing restrictions on enforcing business rent arrears to ensure that they cannot also undermine the arbitration process, which will be in place for six months from Royal Assent. As we have heard from hon. Members, the covid pandemic has hit businesses hard, affecting disproportionately those at the frontline in our high streets and communities, which have been forced to close or restrict trading from March last year.
Labour recognises the need for a fair arbitration process to deal with commercial rent arrears. That is why we will scrutinise the legislation in detail in Committee, having raised some of those broader concerns today, to ensure that the proposals are effective and accessible, and fairly balance the interests of relevant parties. Our principle is that no otherwise viable business should face the significant burden from rent arrears without due arbitration and a burden-sharing process. The guiding principle must also be focused on fairness and on the long-term interests we have in British businesses and supporting them to provide much-needed employment across the country.
Labour has also called for the Government to help ease the covid debt burden faced by firms across the country by creating a British business recovery agency. The reason why we would want to convert the bounce back loan scheme into a student loan-style arrangement is so that businesses would have to start repayments to the British Business Bank only when they are making money. It is important that we have an integrated set of policies on business recovery so that we do not deal with one aspect while there are crises in other areas of life for businesses.
Janet Daby
My hon. Friend is closing this debate brilliantly. Does she agree that this week we have been reminded of how much businesses need a responsible Government, who take speeches to the CBI very seriously?
Seema Malhotra
I thank my hon. Friend for her contribution. I had referenced that and she makes the point powerfully; it is important that we have a Government taking their responsibility to business seriously and showing the nation that they are doing that. The Prime Minister’s speech did more for the sales of Peppa Pig than for supporting business recovery across our country.
Rent debt is a heavy burden for landlords and commercial tenants, and we need a solution that will be in the interests of both. This is a big issue and although we do not know its full scale, the Bill’s impact assessment—the Treasury analysis—notes that the total amount of deferred rent liabilities could be about £9 billion by March next year. That is why we need a policy solution that is fair, fast, trusted, affordable and accessible, so I hope that the Minister will be able to tell us how confident we can be that the system will be in place and what the next steps will be to ensure that.
Labour also called for action on rent debt and the wider business costs in the summer. The Minister will know that before then. I had met UKHospitality, the British Beauty Council, the Federation of Small Business, the Night Time Industries Association and many of those stakeholders to discuss the ongoing commercial impact of covid. Those stories, which he and I still hear, showed the strain on and perseverance of those who have fought against the odds to keep going. As has been highlighted by the 3 million excluded campaign, far too many had been excluded from Government support and still struggle.
Luke Hersheson, a renowned hair stylist who is backing the “Save Our Salons” campaign, said earlier this year:
“In March this year my salons will have been closed for 260 days out of 365. Running a business for more than two thirds of a year with no income at all is incredibly challenging. When the tap is turned off salon businesses are still paying landlords, they’re still paying utility bills, insurance costs and subsidising furlough pay.”
That is a powerful statement about how businesses were struggling and yet were still wanting to do their bit in the community and support, at the frontline, our communities in getting through covid.
Ensuring that viable businesses are able to survive into the future is part of the responsibility of the Government. Members have discussed how small businesses are the backbone of our economy. We see that in all our constituencies—my constituency has more than 5,000 small businesses. We know that the almost 6 million small businesses across the country account for 99.9% of the business population, three fifths of employment and about half of the turnover in the private sector. As the Minister alluded to, many that will be affected and which may need to draw on the scheme in this Bill may well be women-led businesses and ethnic minority-led businesses. Perhaps he will tell us how he is going to make sure that the opportunities provided by this legislation will be known about by those who might need them. How is the ability to seek a reference for arbitration going to be made known to businesses at the frontline in our communities, so that they do not get to the end of six months of struggle and find that it is too late? It is crucial for our recovery to make sure that that is understood and we have that ongoing partnership between the Government and business large and small. We are going to need that to make sure that our economy starts to fire on all cylinders, which is what we want to see, in a recovery that is sustainable. We want to start to see a recovery that generates the profits and then the taxes to sustain our economy.
The challenge of dealing with rent debt that has accumulated is particularly acute because businesses are also having to deal with a wave of rising costs. Government incompetence led to Britain being harder hit than other countries by the supply chain crisis, ongoing issues and steep rises in energy prices. Those are huge blows to businesses as they approach Christmas, which should be the time when they are hoping to claw back profits in order to make up for stresses earlier in the year. The cost-of-living crisis has also seen consumer confidence knocked, as we know. Last month, it dropped to its lowest level since April, thus reducing consumer spending in all our communities. That has been compounded by the inexplicable decision by the Government to cut universal credit for 6 million families in October—returning just a small part of that was not good enough. In my constituency, this will take £18 million out of the local economy. The Government’s jobs tax, which the Opposition oppose, is also due to come in right at the time when debt protections ease and businesses are expected to pay back costs they could not afford during lockdown.
The Minister will be aware that all of those compounded pressures will cause a potential crisis for businesses come next April. We know that not all sectors of the economy will recover fast. That point was made by my hon. Friend the Member for Brentford and Isleworth. Aviation, travel and tourism, and parts of hospitality will recover at a slower pace. These measures are set to be in place for six months from Royal Assent. It will be helpful to know how Ministers plan to review whether an extension of a further six months will be required and how they will bring those considerations to the House.
The Bill strikes an important balance between the duties of tenants and of landlords and builds on the code of practice for commercial tenancies that was announced in the summer and revised most recently in November. Will the Minister respond to the points raised about how the viability of businesses is to be determined? A key task for arbitrators under the Bill will be to assess how viable businesses are. There are some relevant comments in the code of practice, but the Minister will understand the Opposition’s concern about what qualifications we can expect arbitrators to have so that they can make that assessment. How will the panel of arbitrators be pulled together? What will be the criteria for and what scrutiny will there be of their capabilities? What does the Minister really mean by “a viable business”? Over what time period will viability be assessed, given that different sectors will continue to recover at different rates? Has the Minister considered a simplified appeals system in case there are disagreements about arbitration decisions? Will he comment on the consistency of the arbitration framework? There is currently no great detail on it and there is a risk that different arbitration bodies and arbitrators will take different approaches to cases, resulting in inconsistent decisions.
Businesses are facing a difficult and now costly recovery from the pandemic, with rising costs coming downstream. I am sure the Minister will want to assure the House that he will make sure that the arbitration process is affordable. What plans do the Government have to make sure that the fees do not preclude access for those who need support?
The Bill is welcome, but it is narrow in respect of addressing the overall issues that businesses face and will continue to face as we recover from the pandemic. It will be a slower recovery for some sectors than for others. The Bill provides necessary support for businesses with their rent debt if agreement has not been reached, along with an arbitration process, which must be fair and implemented quickly. If the Conservatives really cared about business health, they would use this opportunity to go much further in the provision of support in respect of business rates reform and the other costs and supply-chain issues that are hitting businesses and consumers hard.
Paul Scully
With the leave of the House, I will speak a second time to sum up the debate. I appreciate and very much value the constructive nature of the debate and the comments and positive notes on the Bill’s purpose. I shall concentrate my remarks on the issues raised that relate directly to the Bill. I do not apologise for the fact that the Bill is narrow.
The hon. Member for Richmond Park (Sarah Olney) asked why legislation did not go through earlier; we extended the moratorium for several months, rather than for just a quarter so that we could get the Bill right. We spent that time working with the arbitration services to make sure that we have the capacity and expertise—on which I shall say a little more later—that we need. We have also worked with landlords and tenants, because we have to strike a really delicate balance: we are, in effect, intervening on a contractual arrangement between two private bodies. A lot of the other support that the Government have given has been in the form of relief on various taxes, including business rates and VAT; through direct grants; or through the guaranteeing of loans. The Bill is very much about the moratorium, and our unwinding from that involves our stepping into private contracts, which we would not do without due care and attention.
The hon. Member for Brentford and Isleworth (Ruth Cadbury) talked about the scope of the Bill and eligibility. By targeting the support, we can be sure to get the arbitration cases through quickly and resolved quickly. We clearly need a solution to the debt and do not want cases to drag on for years. If the scope of the Bill were too wide, capacity would start to be swamped, so in trying to help as many people as possible we would end up helping nobody. It is really delicately balanced.
Nevertheless, I appreciate the fact that over the past 19 months there have been significant difficulties for people we have not been able to support with the £352 billion-worth of financial support we provided as we wrapped our arms, as best we could, around the economy to protect jobs, livelihoods and businesses. By resolving the rent debt for a business within the Bill’s scope, we will help not only that business, but its immediate supply chain and all the individuals who contribute towards its success, by getting that business back on a level footing. I hope Members understand why we have targeted the legislation in the specific way we have and how it will deliver support where it is most needed.
The hon. Member for Brentford and Isleworth also talked about the availability of arbitrators, as did several other Members. I reassure Members that we have worked closely with the arbitration bodies and the market is ready to deliver. Our engagement with arbitration bodies has raised awareness of the proposals and we will continue to engage with interested bodies so that the system is up and running as soon as the Bill comes into force.
We put out a call in respect of arbitration earlier this month and there have been a number of respondents. The arbitration bodies that have demonstrated an interest in becoming approved bodies are already widely recognised and respected in the field of arbitration for the accreditation services they provide to their arbitrators. That accreditation acts as a quality-assurance service. There is a statutory duty on approved arbitration bodies to ensure that the lists they maintain contain only arbitrators who appear to an arbitration body to be suitable by virtue of their qualifications or experience. An approved arbitration body also has a duty to remove arbitrators from a case on any one of the grounds for removal specified in the Bill—for example, when
“the arbitrator does not possess the qualifications required for the arbitration”.
The Secretary of State also has the statutory power to withdraw approval from a body if it is no longer considered suitable to carry out the functions of an approved arbitration body.
The hon. Member for Feltham and Heston (Seema Malhotra) asked how we are going to communicate the changes. It is important that the parliamentary process has signalled the introduction of legislation and, along with continued conversations between the Government and the Opposition, that will raise its profile, but we will have to do more direct communication through business-representative organisations, banks and accountants—the kind of intermediaries that all businesses tend to have. There is lots of work to be done, but we want to make sure that we get it right on the front foot.
On how much arbitration will cost and whether it will be affordable, the party that puts forward the case for an arbitration will pay an application fee to the arbitral body. If both parties agree, the fee can be split between landlord and tenant at the point of application. When making the award, the arbitrator must require the other party to reimburse half the fees paid or to pay
“such other amount as the arbitrator considers appropriate”.
The price will be set by the arbitration bodies, although the Secretary of State retains delegated powers to set a cap on the fees charged. For similar schemes, there is a £1,250 application fee, with additional costs if the parties choose to progress to a hearing. Our preference—not just about cost, but about speed so that we get things resolved for both parties—is an online, documents-based process to keep costs to a minimum and to ensure that the process is available to all.
The hon. Member for Feltham and Heston also asked about demonstrating viability.
Seema Malhotra
The Minister has given a figure of just over £1,200 as a comparable amount. Given the Secretary of State’s power to introduce a cap, is the Minister signalling the Government’s intention to introduce a cap and the amount it might be set at? If so, what is the assessment of affordability for the context in which the Bill has been introduced?
Paul Scully
I do not want to pre-empt further consideration of the Bill, further discussions with the arbiter or, indeed, the Bill’s passage, but it is clear that tenant businesses will already be struggling financially, given the problem that we are trying to solve with the Bill.
We will make sure that, if we do introduce a cap, that is done at a limit that is consistent with the market, with the overall aim of not preventing small and medium-sized enterprises from accessing the scheme. The cap, though, will be variable. It will be on a sliding scale relative to the amount of protected rent debt that we used to determine the cap should it come in, and we will ensure that it is proportionate for each case. We do expect otherwise viable businesses to be able to afford the cost of arbitration.
On viability, there is no specific definition of what constitutes viability, because, clearly, business models vary hugely. In clause 16, there are factors that arbitrators should consider when assessing the viability of a tenant’s business. Within the wider code of practice, there is also a non-exhaustive list of evidence that could be considered when determining viability and affordability.
Hopefully, that has covered a number of the direct issues. I will not go too heavily into some of the other areas that extend around high streets. Suffice it to say that having put £352 billion-worth of support into the economy—including into those hard-pressed sectors, including retail, hospitality, leisure and personal services —we have 352 billion reasons to get the next bit right to make sure that we can have the Reading East that I remember. Probably some of those businesses have gone since I was at university 30-odd years ago, when I enjoyed far too much hospitality—the Purple Turtle, the After Dark Club, the Turk’s Head, and the Ye Babam Ye kebab shop, he says going down a Ricky Gervais memory lane in Reading East. Indeed, I have also had many a happy meal in Don Fernando’s in Richmond. We want to make sure that we can protect these hard-pressed sectors.
Paul Scully
I will briefly give way to the hon. Gentleman if he tells me whether any of those businesses are still open.
Matt Rodda
They are still open, yes. I am grateful to the Minister for his tour of Reading town centre, and I am also a big supporter of many of those businesses. Will he come and visit Reading with me to look at the specific issues that some of the local businesses face, in particular how some of our small businesses on our local high streets cope when there is no longer a bank?
Paul Scully
The hon. Gentleman is absolutely right about the need for access to cash and access to banking services. I am always happy to come to Reading. It is important that banks—and post offices where banking pilots are under way—remain that cornerstone of social value on the high street.
Finally, I went off track when we started talking about Peppa Pig. Children in 118 countries know about Peppa Pig because it is a hugely important British brand and British export worth £6 billion to the economy—that is just Peppa Pig itself. I dare say, though, that the people behind Peppa Pig probably will not need the Bill. It will be those smaller businesses on our high streets up and down the country that do, and that is what this Bill is here to do.
The Bill provides that resolution for the remaining rent debt accrued by businesses required to close. It will deliver key Government objectives, protect jobs and help to prepare for a new, stronger economy post covid. I look forward to discussing the Bill further in Committee, but for now, I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Commercial Rent (Coronavirus) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No.83A(7)),
That the following provisions shall apply to the Commercial Rent (Coronavirus) Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 16 December 2021.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)
Question agreed to.
Commercial Rent (Coronavirus) Bill (First sitting)
Tuesday 7th December 2021
(2 years, 11 months ago)
Public Bill CommitteesRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 7 December 2021 - (7 Dec 2021)
The Chair
We are now sitting in public and the proceedings are being broadcast. Before we begin, I have a few announcements. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee except for the water provided. Members are expected to wear masks when they are not speaking, in line with current Government guidance and that of the House of Commons Commission. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Please also give one another and members of staff space when seated and when entering and leaving the room. Hansard colleagues will be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Date Time Witness Tuesday 7 December Until no later than 10.10 am UKHospitality; British Retail Consortium Tuesday 7 December Until no later than 10.55 am British Property Federation; Lightstone Properties Tuesday 7 December Until no later than 11.25 am Chartered Institute of Arbitrators Tuesday 7 December Until no later than 3.00 pm ukactive; Federation of Small Businesses; British Independent Retailers Association
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication, and a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I hope that we can take those matters formally, without debate.
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 7 December) meet—
(a) at 2.00 pm on Tuesday 7 December;
(b) at 11.30 am and 2.00 pm on Thursday 9 December;
(c) at 9.25 am and 2.00 pm on Tuesday 14 December;
(d) at 11.30 am and 2.00 pm on Thursday 16 December;
(2) the Committee shall hear oral evidence in accordance with the following Table;
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 22; Schedule 1; Clause 23; Schedule 2; Clauses 24 to 26; Schedule 3; Clauses 27 to 30; new Clauses; new Schedules; remaining proceedings on the Bill;
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 16 December.—(Paul Scully.)
The Chair
The Committee will therefore proceed to line-by-line consideration of the Bill on Thursday at 11.30 am.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Paul Scully.)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room and circulated to Members by email.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Paul Scully.)
The Chair
Q
Kate Nicholls: Thank you. I am Kate Nicholls, chief executive of UK Hospitality, which is the national trade body representing hospitality businesses, from single site to multi-chain. We have 700 member companies and 95,000 outlets—about 95% of the market.
The Chair
Do you have any introductory remarks to make about the Bill?
Kate Nicholls: In the interest of brevity and given the time, I will not make any introductory remarks.
The Chair
Thank you. Dominic, will you introduce yourself and make any introductory remarks that you may have?
Dominic Curran: Thank you, Chair. I am Dominic Curran, property policy adviser at the British Retail Consortium. I will follow Kate’s lead and incorporate any remarks that I might have made into the evidence that I give.
The Chair
Thank you very much. In that case, I will open up the floor to questions. Seema Malhotra.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Kate Nicholls: I will begin by saying that we have had unprecedented engagement in terms of the preparation for the Bill and all the way through the coronavirus crisis. In terms of when we first started talking to Ministers in the various Departments about the impact on rent and rent debt and the ability of businesses that were forced to close to pay rent debt, the engagement began in March of last year and has continued throughout the process. Certainly over the course of the summer since the intention to legislate was announced, we have had extensive dialogue and consultation meetings with Ministry of Housing, Communities and Local Government and Department for Business, Energy and Industrial Strategy officials.
Seema Malhotra
Q
Kate Nicholls: I do not have any concerns about the definition of tenant in this legislation. I think it is important that this piece of legislation sits within the existing canon of property law. There are some very clearly defined terms and references there, so the definitions do not cause us any degree of concern. An area that we may have wanted greater clarity on—we would hope that that would come forward in the guidance to arbitrators—is around the importance of sharing the burden of outstanding rent debt for those businesses that are covered by the ongoing moratorium and the mandatory arbitration process. It is also important to make sure that we have clarity around affordability and the affordability tests, but that could come through in guidance to arbitrators.
In terms of the challenges that businesses have faced over the course of the pandemic, I have to say that in large part landlords and tenants have worked very closely together to try to get through the crisis and, over the period of time that has been affected, about half to two thirds of landlords and tenants have been able to reach agreement on the treatment of rent debt and ongoing rent liabilities during that period, before the Government introduced legislation. The decision and the announcement of the intention to legislate gave a further nudge to those parties that had outstanding rent debt or which refused to negotiate or come to the table over that period. At that point, about a third of our businesses in hospitality had not got a negotiated settlement. The announcement of legislation pushed that towards resolution, and we have more businesses undergoing negotiations now. It is not all resolved. About 60% of our members say that all their outstanding rent debt is resolved and they have agreement as to how it will be treated, but that still leaves around one in five who have not got any form of negotiated settlement yet, the balance of the two being those that are in the process of negotiating while this legislation is introduced.
We see a small number of businesses that have been directly affected and continue to be directly affected. That is why this legislation is important—because without it, we would see an unsustainable rent debt that would be borne by a small number of tenants and would undoubtedly result in damage to their business and their businesses becoming unviable, or an impact on jobs, growth and investment going forward. The legislation remains vital to be able to provide the extended protection and to provide a negotiated solution for the remaining businesses that are unable to negotiate that themselves.
Seema Malhotra
Q
Kate Nicholls: That remains an ongoing discussion with officials and Ministers. Clearly, there is an indicative fee level that is set out for an application to the arbitration process, which is consistent with other arbitration schemes. It is reasonable and relatively small scale. Obviously, even if it is a paper process—let alone if it goes to a hearing—there will be considerable additional arbitration costs. We would welcome a cap on that and direction to arbitrators about the treatment of costs that are incurred as part of an arbitration process. Particularly where there is one party who is being deliberately obstructive or who has not co-operated, it would be helpful to have an ability to award costs.
As we go forward and understand in more detail what the arbitration process will look like, and as the guidance to arbitrators comes out, we as the trade association will work to make sure that we have got template systems in place to allow small independent lessees in particular to have access to the resources—the burdens of proof and the benchmarking data—that would help them to make their case at arbitration, so that we can try to keep the costs as low as possible and avoid the need for small businesses in the sector to require professional advice and support. That is where the costs will ratchet up, rather than the entry point costs to arbitration—where people feel they need to have expert witnesses and expert support to be able to build a case. We will work to make sure that we can do whatever we can to help businesses access that in a cost-effective way.
Seema Malhotra
Q
Dominic Curran: The British Retail Consortium, in the call for evidence that the Government published last spring, did call for a scheme that extended the moratorium to a future date and ringfenced the protection of the arrears that arose during the process, and it called for a process of compulsory arbitration. At least at headline level and in terms of the core principles of the Bill, this is what we have called for and what our members want. We do welcome it.
We have a slight concern about the definition of a business tenancy. The Bill appears to suggest that it is only a tenancy that is not contracted out of the Landlord and Tenant Act 1954. We have been assured by officials in separate meetings that that is not the intention of the Bill and that actually the Bill covers any tenancy that would be within the scope of the 1954 Act, whether it is contracted out or not, which does give us some comfort. That might be an area you would want to clarify in the course of scrutiny of the Bill.
Engagement with officials and Ministers has been fantastic, actually, throughout the pandemic and through the drafting of the Bill. We have a similar concern to UK Hospitality about the approach that will be taken on viability. Some of the definitions that the Government have said they do not want to enshrine in legislation—which is, I suppose, understandable—will be left to guidance for arbitrators. More than ever, the devil will be in the detail on that. We would want to see what that guidance is as soon as possible to give as much clarity as possible to businesses that might be thinking about using this route.
We would want to make sure that that guidance also directed arbitrators to take as broad a concept of viability and affordability as possible, so that there is enough understanding of a business’s circumstances that they could build in an allowance for the uncertainty of future cash flow and turnover, not least because there will be tax rises coming from April onwards when this process will effectively kick in—both higher businesses rates liabilities for many businesses and further tax increases on Business Network International contributions. We would want to see as much certainty in advance as possible and as much understanding of the need for businesses to have a buffer to enable them to trade while all these adverse headwinds are hitting them. We certainly share some of the concerns of UK Hospitality. I think the approach taken on fees is exactly right, as Kate outlined. While there may be a nominal, reasonable amount to enter the arbitration process, we would want the process to be as straightforward as possible, particularly for smaller businesses, which will not have access to in-house or agency consultants to support them through the process, so that it really is open to all and seen as fair and equitable.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
Q
Dominic Curran: I think it is less of a problem than it is for UK Hospitality. That is not to say that it is not a problem, but I think retail rent collection levels are higher than hospitality, as you would expect, given that the retail sector includes businesses that were allowed to open throughout the pandemic, particularly grocery and pharmacy businesses, so turnover has probably been higher proportionately in retail than it has been for hospitality.
I think it affects a smaller proportion of our sector in terms of the quantum of rent arrears, but it is still significant. It is estimated that there are still several billions of outstanding rent arrears in the retail sector during the pandemic period that the Bill covers, as far as we know. Some of that surveying does not take account of agreements that will have been reached off the books, as it were, or outside the formal rent collection dates, so it is an uncertain figure. When we have spoken to members, and this is an informed guesstimate rather than a thorough survey, it feels like we are at about 80% to 90% of rent having been collected and deals having been done, so it is a very small proportion of the outstanding rent liabilities that is left to be resolved. With each extension of the moratorium every three months, as we have seen over the past year and a half, and particularly with the announcement of this Bill and the process that it proposes, we have seen that percentage chipped away. Ever more landlords and tenants are reaching agreements. While it is a significant problem, it is probably less of a problem than it is for UK Hospitality, but it is still really important that even if businesses do not take advantage of the arbitration process, that process is there—if for no other reason than to help chivvy both landlords and tenants into making new arrangements.
Paul Scully
Q
Dominic Curran: In all honesty, members report that the code of practice did not aid them particularly. Its voluntary nature was the real sticking point. It was not necessarily the content, which was developed in very deep and meaningful consultation with us, UK Hospitality and other interested parties, but it was the fact that it was voluntary that was the sticking point. Because it was good practice, those who were going to use that approach did so anyway, almost regardless of the code’s existence, and those who were not going to use the approach did not feel like the code applied to them, because there were no sanctions on the requirement to negotiate in line with it.
What has helped—in so far as people are aware of it—is the suggestion, and Kate alluded to it, that if you do not negotiate in line with the principles of the previous code and the revised code, there may be some penalty in terms of costs being awarded against you in any subsequent arbitration process. That may help focus minds somewhat.
Paul Scully
Q
Dominic Curran: I would not be able to say significantly, but certainly anecdotally speaking to members, yes, it has helped.
Kate Nicholls: I agree with what Dominic said. The code of practice content was really helpful, and it gave a steer towards negotiations and how you should negotiate in good faith. A mandatory backstop and a legislative backstop are absent. It was limited in its impact in bringing recalcitrant players to the table. When Ministers announced that they were intending to legislate, a third of our businesses still had no negotiations and a large amount of outstanding debt, with no agreement as to how that was to be treated. That has dropped from a third to 20% and it keeps getting chipped away every time we move further forward in the legislative process.
The introduction of the legislative backstop is really important. The code of practice principles will be important to guide discussions for those businesses that fall outside the legislative solution, because obviously there will be parts of the business that will not be covered by the arbitration process. It is about giving the legislative backstop and the clearer direction towards sharing the pain, coming to a negotiated solution and being able to support what would otherwise be viable businesses.
The ministerial forewords in the legislation and the call for evidence are immeasurably helpful in giving a clear direction that landlords should do whatever they can to support businesses that would otherwise be viable. That was the piece that was missing from the code of practice that gives a clearer steer of the intent of the legislation.
Ruth Cadbury (Brentford and Isleworth) (Lab)
Q
Dominic Curran: On the arbitrators who will be used, the Bill says, if I remember it correctly, that the Secretary of State will nominate or choose which arbitrating bodies will be eligible to provide arbitrators to the process, so it remains a bit of an open question. All I would say—having spoken to officials, this point is well understood and well heard—is that given the nature of the discussions that inevitably will be had during the arbitration process, we would prefer to see arbitrators who have a strong accountancy background, perhaps more so, or at least as much as, those who have a property conflict resolution background.
The nature of the process is to look at tenants’ accounts and to make sure that their income, liabilities and forecasts for turnover are such that they can pay a relevant and viable proportion of their rent arrears. So rather than it being a dispute over the interpretation of a lease or the duties of a tenant or a landlord, it should really be about understanding the finances of that business and enabling it to pay a proportion of rent between 0% and 100%, while being able to continue to trade viably at the same time. We certainly want to see the accountancy profession well represented in that.
Whether any other trade bodies, beyond those that represent accountants, are given the right to carry out the process by the Secretary of State remains to be seen. If you wanted to get the confidence of businesses that are tenants, however, you would want to make sure that you had accountants rather than property dispute arbitrators fulfilling the duty.
Ruth Cadbury
Q
Dominic Curran: No, I think it is a reasonable set of stages. There is a helpful flowchart in the revised code. The only point I would make is that we have a situation where the arrears, at least in retail, are historical in that they go up only to April 12 or the end of March, given rent payment dates. We want the legislation to be passed as quickly as possible, the arbitrators to be announced as quickly as possible and the process to start sooner rather than later, because it is the uncertainty that is particularly damaging for any business.
Kate Nicholls: I agree with Dominic that the key thing is that we need to have confidence from both parties to be able to and want to use the process to resolve these outstanding matters as rapidly as possible. I am therefore more attracted to using a multiple variety of arbitration bodies, rather than just one, because we need to make sure that there is no delay in appointing arbitrators and their being able to take on the work. I also agree with Dominic that it is hugely important that they have broad-based financial and business understanding and sector-specific—in our case—understanding of the businesses.
This is not necessarily a legal issue or a dispute resolution issue. This is a financial issue that centres on viability and affordability, and therefore an understanding of the nature of the business, the way it operates, the cost of business and the costs coming down the line, as Dominic alluded to, is critical to an understanding of affordability and ability to pay. Those are the key elements that we want to see. Confidentiality, given that you are effectively opening books and sharing financial information, is really important because tenants clearly need confidence that that will be protected. However, I do not see any problems with the Bill as it is currently drafted.
Sara Britcliffe (Hyndburn) (Con)
Q
Kate Nicholls: As soon as we have got the legislation through, we need the communication out there as rapidly as possible that this is coming, so that the scope of the Bill, as it goes through the House, is clearly understood. We are doing a wide range of outreach through the trade press and through our own communication channels to cascade that information out, not only through the trade association but more broadly. We are working closely with BEIS and MHCLG to make sure that that communication goes out there.
I think it is then about making sure that we have a communications plan post the Bill being enacted to ensure that there is confidence in the arbitration process and the arbitrators, and that we encourage people to use it. It will then be down to the industry to make this work. We will work flat out to do that, and to facilitate the tools that people need to enter into confidential negotiations, using the code of practice, and then arbitration if they absolutely need to as a last resort. Arbitration should be a matter of last resort in this case. Success for the Bill and the trade associations helping commercial tenants through this will be if a small number of cases actually need to go to arbitration to be resolved.
Sara Britcliffe
Q
Kate Nicholls: Clearly, it affects our ability to pay and it affects viability. It is quite clear, and Ministers have been quite clear about this over the course of the last week, that we now know and understand in full the economic effects of any restrictions on businesses, such as in hospitality, which have been asked to bear a disproportionate burden over the course of the whole pandemic. It is quite clear that businesses would not survive without further additional support if additional restrictions were imposed. That would be one measure that would be necessary. Your ability to pay your rent on time a quarter in advance is significantly impaired if your ability to trade is restricted. Trading remains quite soft, and consumer confidence remains fragile, so restrictions would have an immediate and significant effect on ability to pay, viability and affordability—all the tests we are talking about. As a minimum, you would need to extend some of these protections going forward.
Sara Britcliffe
Dominic, do you want to add something?
Dominic Curran: Kate said exactly what I would have said; if you just replace “hospitality” with “retail”, you are more or less there. The only thing I would add to Kate’s comments is that, just as at the peak of the pandemic, with the business rates holiday and restart and reopening grants, when retail and hospitality were able to reopen, you would need to see a package of measures to support businesses in the event of any further restrictions.
Peter Dowd (Bootle) (Lab)
Q
Kate Nicholls: If you look at the pub-owning businesses and the tied pub companies, there has been a far greater degree of forgiveness of rent among those businesses. It might not be 100% for all of them, but significant rent concessions have been granted throughout the periods of closure, and immediately granted. There has also been a greater willingness to defer rent, allowing rent debt to be accrued and rescheduled over a longer period of time.
If you look at the commercial sector, there has been a variety of different approaches, and there is not anything that really reflects the size of landlord or of tenant businesses in terms of a willingness to negotiate and to reach agreement. Some very small landlord companies have been very willing to give rent holidays, concessions and deferments, and some large commercial companies have been very difficult and intransigent in coming to the table and negotiating, and are taking further enforcement action. It is less to do with the size; it is more the nature of the landlord that has caused the biggest challenges, and the ones that we have found taking enforcement action tend to have been the larger commercial landlords, who have taken a more robust line.
Seema Malhotra
Q
Dominic Curran: Thank you very much for asking that. That is a really important issue for our members. We have been asking for action on county court judgments and High Court judgments since October last year. We are very pleased that the Government listened and took account of our concerns to the extent that it was announced alongside the Bill that there would be no ability for landlords to pursue court processes for rent arrears after 10 November, when the Bill was introduced. Unfortunately, that means that any landlord who started those proceedings before 10 November is now in a more advantageous position than any landlord who was perhaps negotiating in line with the code and taking a more reasonable approach with their tenants.
We have the slightly perverse situation that the “more aggressive” landlords are actually better off now than those who might have been taking a longer, more reasonable and more timely approach. I do not see why it should be impossible for there to be a direction to courts to stay any court hearing—county court or High Court—for rent arrears pending the outcome of any arbitration process, or the period in which you could make an arbitration process after the Bill gets Royal Assent. I do not see why it is right that those landlords who have been more aggressive are able to carry on their approach.
We saw that problem early on in the process. The Government rightly and laudably made it effectively impossible in England for landlords to take properties back, to seize goods to the value of the debt, and to effectively start the process of winding up a tenant. That was the rent protection moratorium, which was very welcome and was extended, but it left, as we have been saying since October last year, a gap in the ringfence that unfortunately some landlords sought to exploit very early on. Landlords’ lawyers were sending tenants letters demanding rent arrears, and they could effectively impose the costs of that process on to the tenant.
The tenant was therefore liable for not only the rent arrears and any interest due but their landlords’ lawyers costs, which some suggested might have been slightly inflated, as well as their own legal costs in defending themselves. One member said to me, “It’s a bit like a water running downhill; it will always find a way.” That was the situation with CCJs. While it is fantastic that there has been recognition of that loophole, unfortunately it applies only from 10 November. Any CCJ that had not reached a final decision but was in train in the courts should be stayed pending the outcome of the arbitration process.
Seema Malhotra
Q
Kate Nicholls: I would echo everything that Dominic has said. CCJs have remained a cause for concern throughout this process, and we have been flagging it as a potential loophole that some landlords are exploiting. The key point about a CCJ is that it seeks to establish that the rent—a debt—is due in full, and the confirmatory judgment that it is due in full cuts across the arbitration process, which talks about a fair sharing, a fair split or fair dealing with the rent debt, so you are pre-empting that discussion. There are significant effects for the business that has a CCJ against it, in terms of credit rating, so there is an onus on a business to try to resolve the matter and prevent it from being heard in court. So this has always been a major source of concern. What we have seen is landlords—even after the date of the ministerial statement that the Government intended to legislate and about the intent on the code of practice and the arbitration process—tabling and starting CCJ processes. That is a particular cause for concern when the intention and the direction of travel are quite clear.
So I agree with Dominic. The concern is that you have this cut-off date of 10 November, which is when the legislation was published, but we would want to see direction to courts to stay all those proceedings, to avoid unnecessary costs to businesses in having to defend cases that should not be being brought and should be set to one side. I think it would be helpful if that was taken forward. Yes, we have raised that as part of the consultation process and we have raised that repeatedly with Ministers and officials over the course of the last year. As Dominic says, we have been highlighting CCJs since October of last year, but, more importantly, highlighting the continued use of them since spring of this year, when the intention was announced. I understand the challenges of legislating retrospectively, but I think it would be helpful to give direction to the courts, and clarity and certainty around that.
Seema Malhotra
Q
Kate Nicholls: Yes, I think that would be helpful to take into account, in terms of both arbitration fees and more general costs, if people are having to incur costs to go to arbitration because of a refusal to negotiate. I think that would be a sensible, pragmatic principle to put into the guidance to arbitrators in order for them to be able to take that into account.
Seema Malhotra
Q
Dominic Curran: We certainly have been making representations to officials since it was clear that this was the direction of travel the Government wanted to go in, and I am sure they have heard loud and clear the points that we have made, which will have been made by UK Hospitality and others. I think they completely understand and appreciate that.
It would probably be helpful, as I think I said earlier, for the Government to set out as far in advance as possible, or as early as possible, who they are thinking of as eligible bodies that could undertake the arbitration process, or whose members could undertake the arbitration process, and perhaps some of the principles that they would like to see for arbitrators—as I said earlier, making sure that there is a strong understanding of accountancy issues, rather than property dispute issues. I am sure that there will be an announcement as soon as the Bill allows the Government the freedom to make that announcement. It will be all set out in secondary legislation. We want people with a strong understanding of the financial issues, rather than property issues.
Seema Malhotra
Q
Dominic Curran: The Government were right not to put in a clear definition of viability, because I think it will be different for every business, let alone every sector. However, at the same time, there needs to be reflected in the guidance to arbitrators as broad a definition of viability as possible, or as broad a set of criteria as possible to be taken into account when assessing viability. Not only will there be the known knowns, if you like, of higher business rates and tax costs, but there will still be a great deal of uncertainty. Who knows where we will be in March and April, but consumer confidence still has not returned to the levels we saw pre-pandemic. While in retail, particularly, there were reasonably good sales figures for October and November, those are perhaps reflective of people spreading out their December purchases and so are not necessarily reflective of a higher level of consumer spending in the economy generally. In that context, I think it is wise to build in as much of a buffer as possible within the assessment of viability and affordability, because we are still dealing with a hugely uncertain situation, in terms of the ability of businesses to trade.
Seema Malhotra
Kate Nicholls: The questions that you raise on issues pertinent to future trading, future recovery and the costs coming down the line are more relevant to a discussion about affordability, rather than viability. Go back to the principles and the ministerial foreword to the legislation and the call for evidence, which talk about making sure that businesses that would otherwise be viable, had it not been for covid, are able to continue trading through the covid recovery period. That means that you need a longer timeline. I think it is helpful to look at, in our case, the hospitality strategy and the tourism recovery plan, which talk about the length of time it will take our businesses to recover. The domestic and international tourism recovery will be in 2023 to 2024, so you need to look at businesses that will be viable over that longer period and will return to a level of viability that they enjoyed previously.
The questions you ask are much more related to ability to pay and affordability, and the key thing we need there is that longer timeline that looks at the sustainability of making this rent debt payment, either in full or in part, at an immediate point or over a longer period. Those are the questions that the arbitrators will look at. For the tenants’ businesses, it is about making sure that you can factor in all those costs that are coming through and the recovery. That is where I go back to the templates and the benchmarking that business organisations and trade associations are able to provide, so you can look at what happens to the margin.
What we know has happened over the course of covid and over the course of the recovery period since reopening—the point at which the rent debt is fixed; it is 19 July, in our case—is a significant increase in the costs of doing business. Revenues have not tracked upwards to the same level, and we are not back at 2019 levels, and therefore the margin of profitability has been squeezed quite dramatically. It takes more sales to make a profit and to break even at this point in time, when you are looking at cost-price inflation of about 13% in hospitality businesses and revenues that are still around 75% to 80% of 2019 levels. Those are the factors, and that is why it is so important that the arbitrators who are making those judgments about affordability and ability to pay can take account of and understand all of those issues and plug in the future changes.
As Dominic alluded to, you have got the business rates, which need to be looked at site by site, as well as on a business basis. You have got changes in the VAT rate that are plugged in for hospitality. The VAT rate will change from 12.5% to 20%, so there will be a significant cost increase in tax that will be passed on to consumers. Therefore, you need to be able to look at what that will do to the end-point pricing, the affordability and the ability of those businesses to pay if we are not going to have inflation.
The Chair
Order. I am sorry to cut across you in full flow, but I am afraid we are at the end of the time allocated for these questions. I thank the witnesses very much indeed. We will now prepare for the next panel.
Examination of witnesses
Melanie Leech and Astrid Cruickshank gave evidence.
The Chair
Before we start with the next panel, I remind Members that they are expected to wear masks in Committee when not speaking. We will now hear oral evidence from Melanie Leech CBE, chief executive at the British Property Federation, appearing by Zoom, and Astrid Cruickshank, director of Lightstone Properties, also appearing by Zoom. For this session we have until 10.55 am. Can the witnesses please introduce themselves for the record? If there are any very brief introductory remarks, you are more than welcome to make them.
Melanie Leech: Good morning, everyone. Thank you for inviting me to join you this morning. I am Melanie Leech, chief executive of the British Property Federation, which is a membership organisation for all parts of the property sector in the UK, including owners, agents, developers, investors and advisers. We represent an industry that contributes over £100 billion a year to the economy and employs around 1.2 million people. Chair, I will follow the precedent of earlier witnesses by not making any introductory remarks and saving what I want to say for the questioning.
The Chair
Thank you. Astrid?
Astrid Cruickshank: I am Astrid Cruickshank. Thank you for inviting me to join you. I run a small property company called Lightstone Properties. Our investments are mainly car dealerships, retail and leisure. We own all of our investments jointly with joint venture partners, who are all private individuals. I will also wait for the questions.
Seema Malhotra
Q
Melanie Leech: We have surveyed our members at various points over the pandemic, and our latest survey, which represents around 16,000 leases across the whole of the UK and within our membership, shows that around 86% to 87% of those leases are now covered by some form of agreement. We believe that the challenge that is left for the arbitration scheme to solve and tackle is a very small part of the total market.
I must caveat that by saying that one of the challenges in all of this for Government, as much as for anybody trying to work to create solutions and outcomes, is that we do not really know how many commercial leases there are in the UK or in the retail and hospitality sector, which is the hardest hit part of the whole market by the pandemic. Business rates data from the valuation office suggests that there are about 620,000, but they vary immensely from very large property owners and very large tenants to individuals who may not be incorporated but who may have invested their savings or their pension pot in a single property and, similarly, sole traders who may be their tenants.
In any of the data that will be shared with you, it is quite hard to get a handle on what that represents in terms of the totality. There will always be a long tail outside any of the data that we present to you. What I can say is that, from the data that I have seen and that is available to me, we think that the vast majority of leases that we surveyed are now covered by agreements.
Seema Malhotra
Q
Melanie Leech: In most cases, we have seen people behaving well and coming together—not always immediately, but over time. Increasingly, there is a recognition that the relationship between a property owner and a tenant is an economic partnership and that the two partners need to work together and navigate a way through together. As I say, that has happened as time has gone on and everyone has seen that this is not a short-term hit, but a long-term challenge and problem that needs to be approached in that way.
We have seen a number of examples that have been quite widely reported of tenants who can afford to pay their rent but choose not to do so or to engage in any way, shape or form with their property owners. How do we know that they can afford to pay? Because we can see the backing that they have. We can see that, increasingly, they are now starting to pay dividends and bonuses to senior management and they are starting to invest in new properties. Our view is that if they can afford to do those things, it is a clear indicator that they are not in such distress that they need support with their rent. When they are not even talking to their property owners, they cannot have that conversation.
Seema Malhotra
Q
Astrid Cruickshank: For me, the absolute key is that they have good, sound financial knowledge; they are able to look at a set of accounts—both filed and management accounts—really understand them and work out from them how the underlying business is performing.
One of the things that helped me enormously in my negotiations was doing a compare and contrast of my landlord companies, because each of my properties is in a different one. I looked at my net assets and my cash balance, and at my tenants’ net assets and their cash balance, and then I used that, where I had a much larger tenant, as a way to explain to them our respective positions. I think it is critical that the arbitrators can understand the financial positions of both parties and the financial impact that their decision could have.
For us, insolvency was a major concern, and it has been throughout, because if you have a company that owns just one property and it has bank debt, and that tenant stops paying, you are insolvent. All you can then do is inject additional cash. As I said, my joint venture partners are all private and have their own businesses that were also affected, so it is a difficult thing for me to then send them a note saying, “Please send me £10,000 by Friday,” when I know that their main business is hospitality, for example, and they are struggling themselves.
Melanie Leech: I largely agree with Ms Cruickshank. The key decisions that need to be made are about viability and affordability, which require a financial understanding rather than a particular understanding of property contracts and property leases, so I agree.
Seema Malhotra
Q
Melanie Leech: My understanding is that the Government want as few cases as possible to reach the arbitration process, and we share that ambition. We agree that that is right. For us, it is quite hard to see how the same scheme will be accessible both to very small landlords—including private individuals, either themselves or through syndicates and so on, and small companies—and to small tenants, as well as dealing with the very complex nature of the relationship between very large property owners and very large multinational tenant businesses.
The aim is for simplicity and a relatively straightforward and speedy system. I think that is more naturally likely to be able to deal with relatively simple relationships and relatively small-scale sets of books. It is much harder for us to see how larger players will be able to enter the scheme, particularly in a situation where there is either one tenant with multiple landlords, and you are trying to deal with multiple different relationships, or the reverse: multiple tenants with a single landlord. It is really hard to envisage how, in practice, the scheme will be able to cope with those kinds of relationships.
I suspect that it is the Government’s intention that those kinds of cases should not come to the arbitration scheme so that it can be kept simple. In that case, such things as accessibility and the cost structure, and people’s ability to go into it unsupported by ranks of advisers that they cannot afford to pay for, become much more critical. Ms Cruickshank can probably speak more to that.
Seema Malhotra
Q
Astrid Cruickshank: I am pretty pleased with the scheme as it has come forward for landlords of my size. I take on Melanie’s points about larger landlords—going back 20 years, I was a fund manager, and it is a completely different situation—but for me, I think the scheme works well. I like the fact that it includes references to ensuring that the landlord remains solvent, which was critical to me. In terms of fees, a sliding scale that is somehow related to the rent seems the easiest way to keep it affordable. I appreciate that there will have to be a minimum, but if it could be somehow linked to the sum in question that could work for us.
The Chair
We have a sound issue, Ms Leech. Hold on one second.
Melanie Leech: Can you hear me now? I will abandon the headphones. Apologies. Our view is that for the larger, more complex relationships, this scheme should not be the way forward. They should be taken as they would have been before the pandemic. Outside the confines of the ringfencing of this scheme, that will be through the courts. These are, ultimately, legal relationships, and the courts are there to resolve legal disputes. I think the scheme can work well for smaller businesses and less complex relationships, but for those larger, more complex relationships, redress should be through the courts, as it always was and will be again outside the confines of the scheme.
Paul Scully
Q
Melanie Leech: I think what is really important, not only for the individual property owners in the sector but for the market, the health of the sector and the future—I go back to that £1.2 billion GVA that we create every year—is that certainty that you, the Government, understand the importance of contracts as part of what makes UK real estate an attractive investment proposition for pension funds, saving funds and those institutional long-term investors. When we talk about property owners, that is largely who we are talking about. We are talking about our money as individuals, our pensions and savings. In order to protect them appropriately in these circumstances and to secure the future—particularly thinking about the levelling-up agenda, for example, and the investment that will be needed across the country—it was really important that, as part of this announcement, the Government made clear that, if tenants can afford to pay their rent, they should pay their rent in full, and that this scheme is designed to support and facilitate agreement being reached between tenants that are vulnerable and need support and property owners that can afford to give that support. That builds on what has already happened in the market, where millions of pounds of support has already been provided to the most vulnerable tenants. That underlying principle protects the sanctity of the contract for the long term and protects UK real estate as an investment proposition, which we badly need in this country, while also allowing the outstanding cases in which agreement has not been reached to have some kind of resolution.
Paul Scully
Thank you. Astrid, same question to you.
Astrid Cruickshank: I have to say that I think it is quite unfortunate that we need this system at all. I try to speak to all my tenants. I have four who just point-blank refuse to engage. I knew a finance director prior to covid who was always happy to take my call, so it was somewhat disappointing to find, when trying to speak to them to try to agree a way forward, that they just will not engage. I have to say that I have been able to unlock mine now, so unless there are further lockdowns—fingers crossed—I will not need to avail myself of this. I have stuck with the consultation process because I think it is important that there is a voice from a small landlord. People tend to assume all landlords are enormous, and I wanted to make the point that that is not the case.
Mark Eastwood (Dewsbury) (Con)
Q
Melanie Leech: I hope that a binding arbitration scheme will be a neutral process that allows both sides’ views to be heard and a resolution to be reached between those two positions. As I said in response to the Minister, the principles should be that someone who can pay their rent should pay it, but if they can demonstrate that they need support, because they cannot afford to pay their rent, that case should be heard, and a landlord who is able offer support should give it. I think those principles, if they remain in place and underpin the scheme, should lead to a fair outcome.
The other thing we have concerns about—although I think the process is designed to avoid this—is that it is not a case of both parties starting in an equal position. We start from the position that there is a contract that says that the tenant should pay rent, and the tenant is seeking support to set aside that contractual obligation. The evidence base is primarily driven by the tenant’s position; I have heard concerns that if a landlord wants to go into the arbitration process, they need evidence from the tenant to underpin their position, and, if the tenant does not provide that evidence, the landlord is at a disadvantage in the process.
The process is designed to deal with that by allowing them to initiate the process from a starting position that says the tenant should pay in full. If the tenant gives evidence to demonstrate why they need a concession, the landlord can consider that and put in a revised proposal before getting to arbitration. As long as that is in place, the landlord need not be disadvantaged by not having the information up front. It is important to recognise that the burden of proof for both viability and affordability is primarily on the tenant; it is only at the stage at which the tenant’s case is made, as it were, that the question of whether the landlord can afford to give a concession comes into play, at which time they also need to provide evidence. I think that the Government understand that, and that it is built into the process. That is one of the things that property owners will be nervous about.
Mark Eastwood
Do you want to add anything, Astrid?
Astrid Cruickshank: No, I am happy with that. I think Melanie has covered it.
Peter Dowd
Q
There is an issue about landlords. I think you accepted that landlords agree with the principle that both landlords and tenants might have to share the burden of rent arrears that built up during the period of coronavirus restrictions, in the light of the examination of evidence. Do you accept the principle that there may have to be a sharing of the loss for both the tenant and the landlord? Unlike Government Members, I do not think that this is a laughing matter.
Astrid Cruickshank: May I answer that? Our tenants have had varying experiences throughout the pandemic, and some have made more profit during covid than they did the year before, which is down to their ingenuity—pivoting their business and moving more online. I have had at least five tenants file accounts with Companies House that show a higher profit in the first year of covid than the year before. In such a case, there is no loss to share.
Our tenants in hospitality and the gyms that we own have clearly made losses. We have restructured the leases in all such cases. We have put more money into our entities so that we could give them some rent free to help them through the lockdown. We extended the lease, got a break dropped or got some kind of quid pro quo.
Melanie Leech: In my experience, most larger landlords have been working to a sort of grid. They have tried to look at each of their tenants and see the position they are in, and they have prioritised support to help the most needy. The most support has been given to smaller business, independent businesses and businesses that do not have strong financial backing; it has been given overwhelmingly to the hospitality sector, because everyone has recognised that the majority of those businesses do not have the kind of alternative routes that Ms Cruickshank was just talking about. Millions of pounds have been given in rent write-offs already, as reflected in the data that I referenced at the start.
Forgive me if I was not clear in what I said; let me come back to my point. We believe that those tenants who can afford to pay their rent or who cannot demonstrate need should pay their rent in full. Tenants who can demonstrate significant impact on their businesses and have no way of paying should get support from landlords who can afford to give it. We absolutely believe in that principle, because we believe that property owners and their tenants are economic partners and they should be working together.
It is not, by the way, in a property owner’s interest to either evict a tenant or have a tenant go bust if they believe they are a viable tenant, because an empty building is generating no rent at all—whether it is a debt or whether it is being paid. It becomes a business rates liability that the property owner then has to pay. It becomes a dead building. When a month’s footfall goes from an area, it does not come back. If you have empty buildings, people leave that area and they forget what took them there in the first place. That has an impact on both immediate rent and on the value of the property. It is not in a property owner’s interest not to keep tenants in place wherever it is possible to do so.
Seema Malhotra
Q
Melanie Leech: I have not had any concerns about that raised with me by my members.
Astrid Cruickshank: I do not have any concerns about that either.
Seema Malhotra
Q
Astrid Cruickshank: Personally, I would like to see them be in private if I were to take part in one, because I would be disclosing confidential financial information to make the point about my solvency and what I can and cannot offer. Potentially, that would even go as far as who is behind you, who the actual owners are and their ability to inject money or not. I am pleased to see that the Bill says that you would not be required to restructure, so that is good. I feel that in order to make my case properly, I would want to share confidential information. Therefore, I would like it to be private.
Melanie Leech: I would agree with that. By the nature of this, there is going to be a lot of confidential information that is going to be disclosed.
Seema Malhotra
Q
Melanie Leech: I think there are precedents already in the legal system for dealing with sensitive information. The principle is well understood. I am assuming that the Government will look at those precedents to shape how the scheme will work in practice. There are parts that will not be sensitive, and there are parts that will be. Whether it is better to have the whole thing protected or whether it is possible to split the evidence and have it dealt with in two parts, I am not sure.
The other point to make is that some of this may not be heard, as it were. It may well be a paper process at a desk, in which case it does not seem to me that there is any particular need to do anything other than give the documents to the arbitrator in confidence and for them to deal with it. I assume that there will need to be some kind of public statement on the outcome, because I assume that arbitrators will want to see precedents emerging and a pattern of what is happening, particularly if there are multiple situations of different cases with the same tenant or landlord. As I say, I am sure the Government are well aware of these kinds of issues.
Seema Malhotra
Q
Melanie Leech: We have worked quite a lot with various small property owners, although they are not in our membership, over the last 18 months. What I have heard from them is that unless there is a cap at a relatively modest level, the scheme will not be accessible to them. Clearly it is a different matter for larger companies. As for poor behaviour, yes, we absolutely think that if parties do not go into or act through this process in good faith, the arbitrators should be able to award costs against them as part of the outcome.
Astrid Cruickshank: I would agree with that. If the example that I gave you—three tenants just refusing to acknowledge any attempt to communicate with them—ended up in arbitration, it would seem entirely unfair that I should be picking up the costs, when I was prepared to make them an offer but they were not willing to even acknowledge that I had made it or respond in any way.
Mark Eastwood
Q
Melanie Leech: We have a lot of the larger ones as part of our membership, so yes, I think so. They act for both property owners and tenants, so I have been able to draw on their advice about what is happening in the market—what the relationships are—as well as some of the data that is published. The remit data in particular is drawn from the evidence that they collect. The one thing that they would say, and that I would say, is that we were disappointed that service charges were brought within the ringfence and the protection, because that is money that has already been spent by property owners and agents in maintaining buildings. The tenants might not be able to use them for their primary business purpose while they have been shut, but the buildings still need to be maintained and kept safe, and those costs have increased in some cases.
I know that some on the tenants’ side have suggested that those costs should be reduced because the buildings cannot be occupied. Where we can see that service charges have been reduced, that reduction absolutely should be passed on to tenants—I am not for a minute arguing against that—but where those costs have been incurred, we think that they should be paid and that they should not have been able to benefit from the protection of the ringfencing in the Bill, because that is money that has already been spent by property owners. That is debt that has already been incurred, so we were disappointed by that, and I think the agents would echo that point of view. Beyond that, I think they are supportive of this Bill, as we are.
The Chair
Thank you. Are there any final questions? No. In that case, I thank the witnesses very much for their evidence.
Examination of witness
Lewis Johnston gave evidence.
The Chair
Q
Lewis Johnston: Thank you, Chair. My name is Lewis Johnston and I am assistant director for policy and external affairs at the Chartered Institute of Arbitrators. We are a professional body for all forms of alternative dispute resolution. We have 18,000 members across the world, operating across all forms of ADR—arbitration, adjudication and mediation—and we have 6,000 members here in the UK. I will keep my introduction as brief as possible, following the previous witnesses.
Seema Malhotra
Q
Lewis Johnston: In common with some of the previous witnesses, I suggest that financial and accounting expertise will be quite crucial. Obviously, the Bill makes provision for some quite detailed assessments of viability and affordability. There are provisions about the kind of evidence that would have to be given regard to in reaching some of those decisions and making the award, and one of the impressions we got from digesting the Bill was that some of that analysis might require some reasonably in-depth expertise. Within the arbitration profession, there are experts across lots of different fields: there are surveyors, there are property experts who have already acted in property dispute schemes, and there are also financial experts, accountants and so on, but I would say that financing and accounting are probably near the top of the list, given the nature of the decision-making process.
Seema Malhotra
Q
Lewis Johnston: The essence of this choice is about the balance between prioritising the scheme’s affordability and accessibility—obviously, it is meant to be a simple, low-cost way of obtaining redress and getting a resolution—and the need to ensure an adequate supply of suitably qualified arbitrators. As you mentioned in your previous question, some of the required skillsets would be quite specialised, and may be at premium. There are precedent models for this kind of thing. One example, which is not a direct parallel, is the business arbitration service run by the Chartered Institute of Arbitrators, which is designed for relatively low-value disputes—between £5,000 and £100,000. The costs are fixed at £1,250 plus VAT per party, and that includes the appointment fee and the fee for the arbitrator. It may differ in this regard, but there would need to be certainty and transparency, certainly for the parties involved, and one of the benefits of the business arbitration scheme is that there is no chance of the costs spiralling out of control.
The other thing to mention, which may be a pertinent lesson from the business arbitration scheme, is that it is designed to be a documents-only, very simple, quite streamlined process, which will not require representation for either party, because representation can take up quite a good proportion of the costs. It is done with an assumption against having an oral hearing. Obviously, there is always the option of having an oral hearing if the parties require it; that is in the Bill. I think it is correct that that is open to them, but I suggest that the default assumption should be against that and for it being a documents-only process. Given the simplicity of the kind of cases that are intended to go to the scheme, that would be a good way of managing the costs. I note that the Secretary of State will have the power to introduce either a cap or a sliding scale, and again I emphasise the need for really forthright clarity. It needs to be very simple so people understand how it would apply to different levels of dispute.
Seema Malhotra
Q
Lewis Johnston: There is a degree of uncertainty around that, based purely on the pipeline of cases. As the previous witnesses alluded to, most of these cases, most of these disputes over the ring-fenced rent, will be or already have been settled through negotiation, so you are talking about a relatively small proportion, although it is still going to be quite a high number. There is a margin of error to take into account. On the supply side, in terms of the level of interest, there are lots of very well qualified arbitrators out there who would be forthcoming to handle cases like this. As I say, there is quite a strong precedent of arbitrators with the requisite level of skills and experience taking on fixed-fee or low-fee cases like this, but again I point out that the low fee would still have to take account of and cover the fact that a certain skillset and investment of time would be required. It is important that quality is not compromised. I think, overall, there is a good level of interest and there would be a healthy pipeline of arbitrators to take these cases.
Seema Malhotra
Q
Lewis Johnston: Certainly. I was pleased to see, in clause 21 of the Bill, that guidance will be provided. There are several areas in which guidance might be necessary. The first is something that I know will be coming when applications open for approved bodies to appoint arbitrators, and that is around the precise skillsets needed. We have a reasonably good idea of what that would entail, but a bit more detail would be helpful. For the arbitrators themselves, I think the crux point is around viability and affordability. The Bill and the code of practice go into a bit of detail about the kind of evidence that could be assessed as part of that. I think there should be clarity over exactly how much power the arbitrator will have to be inquisitorial as part of the process, the extent to which they can order discovery and so on, and the kind of evidence they can ask for from the parties.
The Bill is very clear about its intention to balance the interests of tenants and landlords and to maintain the viability of otherwise viable businesses, while also having regard to the solvency of the landlords. There may need to be more guidance, and I appreciate that that might come when cases start to go through the system, about balancing the request of the tenant on what is viable for them with what is consistent with maintaining the solvency of the landlord, when those are at odds. Exactly how that could be decided is a bit of a moot point at this stage.
Peter Dowd
Q
Lewis Johnston: That is a good question, and the discussions we have had with the BEIS team initially focused on the question of capacity, because obviously we are talking about quite a large number of cases. The decision to go for more of a market-based approach, with a list of approved bodies rather than a single monolithic provider, was probably the right one. I appreciate that the Bill is taking more of a principles-based approach than saying that the arbitrators have to be accredited in a certain way. It is more about having the competency and impartiality.
Each of the bodies, if they are to be approved, will have to meet the criteria in one way or another. Speaking just for the Chartered Institute of Arbitrators, all our members are bound by our code of ethical and professional conduct, which covers issues such as integrity and fairness, disclosing conflicts of interest, ensuring that you are competent to take on the appointments you are given, trust and confidence in the process, and transparency around fees. That would address a lot of things.
Also, anyone that we were to appoint—should we become one of those approved suppliers—would have to make clear and sign a declaration at the outset, which disclosed any potential conflicts of interests or anything that might be perceived as such, as well as declaring they were competent and had the capacity to take on these cases. That would mitigate the risk of them having to resign or of delays in processing the case.
Peter Dowd
Q
Lewis Johnston: I would welcome more detail on exactly what the approval criteria would be and what the role of the approved suppliers under the scheme would be. There has been a good degree of engagement from the Department so far, but what the criteria would be has not yet been published. However, I know that they are coming shortly. That will be the crucial point in terms of assessing what the role of these appointing arbitration bodies would be.
Paul Scully
Q
Lewis Johnston: I understand the intention is that it would be the simpler, perhaps smaller party cases going through to the scheme, and I think that is correct. Given that the emphasis is on simplicity, accessibility and managing the costs, any scheme that had to accommodate the intricate, large-scale cases would encounter some problems in terms of balancing the two. Again, I point to precedents with things like the business arbitration scheme. It is difficult at this point to assess exactly what the appropriate fee level would be, because you would have to properly assess exactly how much work will be involved in each case—obviously not until they had come through—but I think that in the simpler cases that could be set at a level that was affordable. As some of Melanie’s members had made clear, it needed to be at quite a modest level for it to be accessible to them.
In terms of how the arbitration bodies would manage a variation in the complexity of cases, even it was perhaps the smaller, more simpler end of the spectrum, there will still be variation. We would maintain—this would apply to other bodies as well—lists and databases of arbitrators who would be suitable. Based on the nature of the case that came through, there would be a shortlist drawn up based on who had the requisite skill sets to handle that case. The pool that we would draw from should be broad enough to be able to cater to different types of cases and different sectors and so on.
Sara Britcliffe
Q
Lewis Johnston: I would not want to commit to exactly what it would involve until we got to that stage, but I refer again to the precedent set by our own business arbitration service, which is designed to produce an award within 90 days. It is meant to be documents only, and that is £1,250 plus VAT per party. If it was a very straightforward case—if it was documents only and it followed the same processes—I imagine it could be in the same ballpark in terms of fee level. The best thing would be to have real clarity around what the fees were and how they apply to each case, and for there to be perhaps an assumption against having a hearing, and, if there was a hearing to be requested, very clear guidance on what fee that would entail. Perhaps for a half-day hearing, a certain level. For the business arbitration scheme, there is an option for that. It is £500 for a half-day hearing. Again, the assumption is that the cost could be fixed at those initial costs per party, and that a hearing would not be necessary. It would be documents only.
Sara Britcliffe
Q
Lewis Johnston: I think so. I think that would be the assumption. I think it is right that there is an option to go for a hearing if it is requested, but I think that the default assumption should be that it is documents only. That is most in keeping with the intention and aim of the Bill, which is to have very clear, rapid-fire means of redress.
The Chair
Q
Lewis Johnston: No, that has covered most of it. The Chartered Institute of Arbitrators will be making a written submission to the Committee later this week as well, so that might clarify or refine some of the points that I have raised. We are very pleased to have been invited to give evidence here today, and we will be pleased to engage with the Committee as you continue with the work of refining exactly what the scheme and the process will be.
The Chair
Thank you very much for your evidence.
Ordered, That further consideration be now adjourned.—(Felicity Buchan.)
Commercial Rent (Coronavirus) Bill (Second sitting)
Tuesday 7th December 2021
(2 years, 11 months ago)
Public Bill CommitteesRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 7 December 2021 - (7 Dec 2021)
The Chair
Good afternoon, gentlemen. We will now hear oral evidence from Jack Shakespeare, director of research, policy and communications at UK Active, Andrew Goodacre, chief executive officer of the British Independent Retailers Association, and Martin McTague, national vice chair of the Federation of Small Businesses. We have until 3 pm for this session. Could I ask you to introduce yourselves? If you have any brief remarks to make, please do so now.
Jack Shakespeare: My name is Jack Shakespeare. I am the director of research, policy and communications at UK Active. We are the membership body for the health and fitness sector.
Andrew Goodacre: I am Andrew Goodacre, chief executive officer of the British Independent Retailers Association. We have 4,000 members throughout the UK.
Martin McTague: I am Martin McTague, vice chair of the Federation of Small Businesses. We have 150,000 members across all four nations of the UK.
Mick Whitley (Birkenhead) (Lab)
Good afternoon, panel. I think we met last week, didn’t we?
Andrew Goodacre: We did.
Mick Whitley
Q
Andrew Goodacre: The period we have is about right, actually. Part of the challenge is in scope of what is covered here. Some businesses that have been able to operate throughout the pandemic—essential businesses—but have been in the wrong location have suffered badly with trade. That is still ongoing. Even though businesses are open, if they are in a location near a travel hub or something, footfall will be considerably lower than they are used to—certainly pre-pandemic levels. There is an argument that those businesses are not being protected enough because of that.
Mick Whitley
Q
Jack Shakespeare: Absolutely. I would echo that. The extension and the timescale seem about right; that is the message we are getting from our members. Each sector has its own characteristics. Our sector has a unique recovery curve, in that it is largely subscription focused. Recovery does not cover the cost of service straight away. That impacts recovery. The extended period of time is welcome. I am sure that we will come back to it today, but a guiding principle that needs to sit at the heart of this process is the message of sharing the burden. This is clearly a collective problem that needs a collective solution.
Martin McTague: I think it was about right when we first started discussing this, but omicron has changed all that. It is clear that we are now into a lot more uncertainty. It would be nice to have the flexibility to be able to move that date to respond to what seems to be an ever-changing virus.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Martin McTague: Around the beginning of November, most landlord-tenant arrangements—probably close to 90%—had settled, but the hard-core 10% had got into an acrimonious stand-off. We engaged with the Department for Business, Energy and Industrial Strategy to try to find a way in which those more acrimonious relationships could be dealt with. As for the cut-off date, I realise that it will leave some people on the wrong side of it, but I think that it was about right when it was chosen.
Andrew Goodacre: On the cut-off date, you have to choose a date. There is never a good time, from that point of view. It comes back to an understanding of what negotiations were taking place beforehand, and how they were being managed. Martin referred to a hard-core 10%—we are probably hearing about 15% to 20%. There is a hard core of people on both sides who seem unwilling to reach a negotiation. It would be good to include at the arbitration point an insight into what negotiations and actions were taking place beforehand, and whether those actions were reasonable in the circumstances.
The arbitrator has to decide how to resolve the debt issue. We have heard stories of landlords seeking side agreements or even being willing to write off a level of debt if the tenant gave up their secured tenancy. That kind of negotiation is going on as well. Is that fair? I do not know, because the security may be worth a lot more than half the rental debt, but it is not explained properly. If evidence of what was being said before the ninth can be put forward as part of the arbitration process, that may be a happy halfway house.
Seema Malhotra
Q
Andrew Goodacre: Most of our members deal with smaller landlords, who are possibly not quite so difficult.
Seema Malhotra
Q
Jack Shakespeare: I would support that notion. I think this comes in two parts. I think it comes back to that notion of sharing the burden, and we think the process of county court judgments does not chime with the spirit of the initial code of practice and, obviously, the revised one. I also think that a ringfence should be just that and should not have holes in it. It feels like CCJs are a hole in the ringfence. I would—we would—support the notion that the CCJs process prior to 10 November should be looked at and should be included in protection.
Seema Malhotra
Q
Andrew Goodacre: Looking at what their task is, I would expect arbitrators to have knowledge of leases and the legality around that side, but the biggest judgment that they probably have to make is one before the process starts: is the business viable? So they would need to have a good insight into business. Not all retail businesses operate on the same business model and the same margins and with the same overheads. If the first crunch question is whether the business is viable, because only viable businesses can go to arbitration, they really need to understand business knowledge and business expectations and profitabilities.
Martin McTague: I would endorse that. I think, in this particular form of arbitration, what you are looking for is to protect the interests of both parties, and clearly, if it is not a viable business, that undermines the position and enhances or makes the risk worse for the landlord, but I think most arbitrators are able to take evidence on that kind of issue anyway.
Seema Malhotra
Q
Jack Shakespeare: To go back to the first question, I would endorse the responses from my fellow panellists. For the first question, around viability, that business sense is utterly crucial. The first arbitration case is very important, because it is going potentially to set a precedent, so of course it is incredibly important that these people are chosen correctly.
With regard to cost, I think my answer would be “low”, for understandable reasons. Just because of the wide scope and the differences in size of the businesses that are included in the scope, I think the cost needs to be low. I think that there needs to be an opportunity or option for fees to be re-awarded in the face of bad practice or ineffective decision making. So my answer would be “low”, but of course the affordability of it is down to each business.
Seema Malhotra
Q
Jack Shakespeare: Yes.
Andrew Goodacre: On the cost side, I agree with what Jack is saying: the lower the better. If it is too high, it becomes a barrier to the business, the tenant initiating the action, because it is payable on initiating the arbitration, as I understand it. If a landlord thinks that it is prohibitive to the tenant, the landlord could well play the long game and keep waiting and waiting, because if you do not get the application within six months of the Act being passed, you have missed the opportunity for arbitration. It could well be that if it is too much of a barrier and too high for the individual tenant, they miss that opportunity, so it needs to be kept as low as possible.
Martin McTague: The reason why we are trying to avoid legal action is that when there is an asymmetry of power, when the landlord can use the muscle that they have to try to bully their tenant, you get unfair solutions. I think the principle must be that the cost is as low as possible. I would not want to put a number on that, but I think it needs to be as low as possible.
Seema Malhotra
Q
Martin McTague: My biggest concern is the cut-off date. Given that we are now entering another period of uncertainty, if we ended up with squeeze, where cases were being brushed or pressure being put on because we were getting close to that cut-off date, that could lead to some unfair outcomes.
Seema Malhotra
Q
Martin McTague: Yes. In other words, that is a hard cut-off. We all know that the current situation is changing rapidly.
Seema Malhotra
Q
Martin McTague: We are seeing a lot of retail businesses hanging on by their fingernails, hoping for the best in this last quarter, and trying to get through the Christmas period, which is often make or break for them. If they get even a partial success, and start creeping towards a solution at the end of spring next year, it would be disastrous to try to drive those businesses under when they have survived all the trials and tribulations of covid so far.
Andrew Goodacre: I think the way the code of practice and the Bill have been put together is not bad, and they really try to cover all eventualities. The cost element of arbitration is a barrier to businesses, and puts the legislation at risk. The viability question—how you determine viability, and the clarity and transparency around that—needs to be addressed early on.
I know that we have asked this question and been given the answer, but there needs to be absolute clarity that the Bill applies to all businesses in scope, including those that are contracted out of the Landlord and Tenant Act 1985. That was one of the earlier questions that came back from some members, and we were told that it does include all those contracted-out businesses, but we need to be clear on that, because we do not want to end up with an unnecessarily ambiguous area that leads to legal argument.
There are also tenancy-at-will situations. When negotiations on a new lease are ongoing but have not been resolved during the closure period—the protected period—the tenant is operating on a tenancy at will. Arguably, there is no guarantee that that tenancy at will is covered by the Bill. Again, that will need clarity and understanding.
Martin McTague: There is another point that I should have raised. A lot of supply-chain businesses supply those that are directly affected and covered by the scope of the Bill—they have been seriously affected by what has gone on so far. If you take a retailer, for example, virtually everybody who is supplying that retailer has gone through the same sort of trauma as the retailer, but none of them will be protected in the same way.
Jack Shakespeare: I echo and endorse Martin’s point: one of the prospective risks is the uncertainty around the next few months. It feels like a bit of a “hold your breath” moment. You could talk about it being make or break for our sector and for different characteristics across sectors. A make or break part of the year for the gyms, pools and leisure centres sector is January to March. That is a hugely important quarter of the year, and it rolls into that time period. I would just echo that: the uncertainty of the next few months is a major risk.
Peter Dowd (Bootle) (Lab)
Q
Andrew Goodacre: Contracted out?
Peter Dowd
Yes.
Andrew Goodacre: I would not know the percentages. Over the years, people have come out of it, sometimes incentivised by the landlord because it is preferential for the landlord to have the tenant contracted out. This is not my absolute field of expertise, but there is a wider view that the Landlord and Tenant Act could be rewritten as well in the near future, to reflect a more modern business environment. There are concerns about that Act in general.
On the issue of whether a business is in or not, we are told that everyone is in—it does not matter. The tenancy at will is slightly different. That is where a temporary tenancy agreement is created because the negotiation for a new one has not been completed, but a tenant is given the opportunity to operate at will until such time as a new one is agreed. A tenancy at will gives no protection whatsoever to either party. Either person could walk away at a week’s notice—at very short notice.
Peter Dowd
Q
Andrew Goodacre: We need to be clear that the Bill is designed, I believe, to protect businesses that were mandated to close in the timeframe of March ’20 to, depending on the sector, August ’21, and it should not matter whether that business is contracted out under the Landlord and Tenant Act—we are told it does not matter—and it should not matter if they have, through circumstances during that timeframe, ended up on a tenancy at will, simply because they could not agree their new tenancy under normal circumstances. Those are the areas where we want to make sure that the legal loopholes do not exist for highly paid lawyers to exploit.
Peter Dowd
Q
Andrew Goodacre: I am sure he has. What we have been told is absolutely correct and reassuring. We just want to see it written with absolute clarity.
Peter Dowd
I am sure the Minister has got that tagged and will be paying due attention to it.
Peter Dowd
Q
Martin McTague: There is a very clear dividing line. The retail, hospitality and leisure sectors are the ones most badly damaged by this whole crisis. It also reflects the point I made earlier. There are extended supply chains within those sectors as well, which have also been affected. In terms of the top of the supply pyramid, retail, hospitality and leisure are without doubt the most affected sectors.
Peter Dowd
Q
Martin McTague: You will probably anticipate my first answer, which is that trade bodies are probably a good way of getting the message out. I think lawyers as well. The first thing that most people in this situation will do is to refer to their lawyer. There has to be a clear duty on lawyers to explain that arbitration is an option that they can take up.
In our experience, the smaller businesses tend to respond better to social media, so a BEIS publicity campaign based on social media contacts. The other obvious one is local government, which could do a lot to get this message back to retailers, especially in their area.
Jack Shakespeare: I support that, absolutely. As a trade body, engagement from the Department to us has been very positive. That communication has been great. We have been able to disseminate as much information as we could accurately and efficiently. I would echo that starting point. Again, use local government, lawyers and social media, recognise the characteristics across each sector and work with trade bodies to get the right messages across. They are obviously the experts in talking to those different businesses.
Andrew Goodacre: The communications have been covered well by my colleagues. To go back to your earlier point on what people have done to get through the crisis, we only do retail businesses, and they worked really hard as always. They have shown great creativity and determination, but one telling fact is that their level of debt has increased five times, by taking out bounce back loans, for instance. The larger retailers would have taken out a business interruption loan.
There was some research done in the summer of this year that suggested that the debt in independent businesses —which is not the usual business model; they do not normally do debt—is five times higher. It is estimated at about £2.2 billion. That has to be repaid. Then you have got rental debt on top of that. It leads back to this argument of viability. When you are assessing a business, you take a cold, hard look at its balance sheet. If a small business has a business loan or rental debt on there—and you have to counter the liability—before you know it, it is technically balance-sheet insolvent. It still may be viable as an operation, but there is a technical balance-sheet insolvency because of the level of liability it is are carrying, which it would not normally be carrying.
Whether it is rental or business loan debt, debt is a problem. Businesses have had to do it because they needed to survive. They wanted to trade and give themselves the chance of re-establishing themselves. Many are doing that. If we get a good Christmas, hopefully they can look to ’22 with some positivity.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
Q
Martin McTague: I saw a definite change in the atmosphere. I know the Minister will be aware of this, but I think there was some doubt as to whether you, as a Department, would go this far. Free-market instincts would suggest that you would not. As soon as you had made it clear that compulsory arbitration was going to play a part, the whole atmosphere in these negotiations seemed to change. People entered into much more constructive arrangements. Some of them completely avoided or did not want to go down an arbitration route and settle on payment terms, which I do not think they would have done prior to that decision, so I think it has had a wholly positive impact.
Andrew Goodacre: I would say that when we first started looking at the problem in 2020, it was 40% to 50% that had experienced challenges with trying to negotiate something with landlords. I said earlier that we are down to a hard-core 15%—maybe 20%, but it is probably nearer to 15%. There is entrenchment on both sides at that point. The message about sharing a burden that Jack referred to earlier is really crucial in that. People on both sides, where they are entrenched, realise that they stand the risk of losing something from that position. People are beginning to come to it now.
If I have a concern, it is about things I have been hearing from tenants who are saying that landlords are trying to leverage negotiations before getting to arbitration. I mentioned asking people to give up security, or even saying, “We’ll write off part of that debt, but we’re going to increase your overall rent up to this level.” They are using a bit of power, fear and the realisation that cash is king to the business in order to influence a decision that may not be in the best interests of the business in the longer term, but in the short term looks like a natural solution. Some of that may be right. I am not saying that it is not, but there is an indication of some of those behaviours starting to manifest.
Jack Shakespeare: To endorse that, I think it has changed the atmosphere. It has certainly turbo-charged the conversations. It goes back to a few things. The ability to disseminate the information is really important. You have picked up on the clarity before. How that comes out through trade bodies and goes out through lawyers and local government is really important. That will maintain the pace of conversations. It is really important that it does not drop, so that people access that information. The overriding sense of uncertainty looking ahead is a massive dynamic right now, but holistically it has really changed the atmosphere and advanced the conversations.
Paul Scully
Q
Martin McTague: The code of practice has worked, in that it has set an expected behaviour and the way in which the parties should relate to each other. I accept completely that if you tried to expand the scope dramatically it would damage the impact, but clearly it does not stop with the retailer; a lot of people are impacted by this.
Paul Scully
Q
Andrew Goodacre: This code is so much stronger than the previous code in 2020. We are moving in the right direction. It links into your earlier question about changing behaviours, and the code has been instrumental in that. On what would enhance the code, I appreciate that the information is not entirely available yet, but it is about who will be arbitrating, the costs of that arbitration and the decisions around the viability, so that people get to know as early as possible what they need to do to submit, if they feel that they will end up in that situation. Preparing for arbitration will be quite scary to some people—the mere thought of putting all that information together. As soon as we can release what they need to have recorded and prepared, the earlier they can start doing it. You do not want to try to collate all the information with two months to go on the process.
Jack Shakespeare: I have nothing to add to that.
Mick Whitley
Q
Martin McTague: It might do, but the alternative is that they would have to take legal action, which is likely to be much more expensive and protracted. It is not an ideal solution, but it is certainly a step in the right direction.
Andrew Goodacre: Yes, it could do. If you were looking at costs in the hundreds instead of the thousands that would obviously be better. You have to put it in context. As I think one of your colleagues said, next year an awful lot of cost increases are coming through to business, whether it is the national minimum wage or energy costs, which have tripled for many businesses. Suddenly, whether it is £1,000 or £2,000, it looks like a lot of money. That may lead to a better negotiation and solution before you get to arbitration, but it plays to the landlord to play the waiting game at that point in terms of initiating the arbitration. That is the threat of it.
Jack Shakespeare: To go back to one of Andrew’s last points, as much foresight and clarity on that up front would be beneficial, so that people can make informed decisions on how they go forward.
The Chair
Given that there are no further questions, I thank the witnesses for their evidence. That brings us to the end of today’s oral evidence session. The Committee will meet again on Thursday at 11.30 am in Committee Room 10 to begin line-by-line consideration of the Bill.
Ordered, That further consideration be now adjourned. —(Felicity Buchan.)
Commercial Rent (Coronavirus) Bill (Third sitting)
Thursday 9th December 2021
(2 years, 11 months ago)
Public Bill CommitteesRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 9 December 2021 - (9 Dec 2021)
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee except for the water provided. I encourage Members to wear masks when they are not speaking, in line with Government and House of Commons Commission guidance. Please also give each other and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Hansard colleagues would be grateful if Members emailed their speaking notes to hansardnotes@parliament.uk.
We now begin line-by-line consideration of the Bill. The selection and grouping for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. Please note that decisions on amendments do not take place in the order that they are debated but in the order that they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates, and decisions on new clauses will be taken once we have completed consideration of the existing clauses of the Bill. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking about it that they wish to do so.
Clause 1
Overview
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
It is a pleasure to serve under your chairmanship, Mrs Murray.
Many businesses are still on the long road to recovery following the pandemic, particularly in the sectors that have been hit hardest, such as hospitality and retail. The most recent data indicates that rent collections for this year’s third quarter are much higher than they were for last year’s third quarter, but they are still not at pre-pandemic levels. An estimated total of just under £7 billion of rent was deferred over the pandemic.
Although we have provided an unprecedented package of support to businesses, we have also been clear that we expect landlords and tenants to come together and negotiate. Agreements have been reached for many businesses, but for others negotiations have stalled, leaving rent arrears to build up, which could threaten many of the valued jobs that those businesses provide.
The statutory arbitration process that the Bill introduces should be used as a last resort, where landlords and tenants have been unable to reach their own agreements. For those tenancies, the Bill will ring-fence rent debt accrued during the pandemic by businesses required to close, and set out a process of binding arbitration that will resolve rent disputes and help the market return to business as usual. The Bill will temporarily restrict remedies available to landlords in relation to rent debt built up during the pandemic. To respect the primacy of the landlord-tenant relationship wherever possible, the arbitration process will not be available where legal agreements are reached between landlords and tenants over the payment of a protected rent debt.
I commend the clause to the Committee.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship today, Mrs Murray.
I am grateful to the Minister for his opening remarks, in which he set out why the Bill is needed. Indeed, some of the estimates of the deferred rent debt that has been built up are around £7 billion, with some as high as £9 billion. That is why we called for action earlier this year, so that there was clarity about how some rent disputes would be resolved, and resolved fairly, because we know that the impact of the pandemic is ongoing.
I have concerns that may be outside the scope of the Bill, unless we decide to accept some amendments on Tuesday. In the light of the announcements yesterday and the guidance coming out today, there may need to be a review if there is a risk of further rent arrears if income drops for businesses in the period ahead. So I hope that there will be ways in which we can keep matters under review, in the light of recent developments.
Clause 1 indeed provides an overview of the Bill, and it is in part 1 of the first three short parts. Part 1 is about “Introductory Provisions”, including important definitions; part 2 provides the framework for statutory arbitration between landlords and tenants; and part 3 provides for the ongoing restrictions on “Certain remedies and insolvency arrangements” in relation to protected rent debt.
Importantly, clause 1 also confirms that nothing in the legislation affects the ability of parties to a business tenancy to reach a negotiated settlement outside the arbitration process. That is important because the arbitration process is a backstop; it is a last resort. It is preferable—in terms of time, cost and the relationship between the parties—that they can be supported to reach a negotiated settlement without the need to resort to arbitration.
Labour will continue to encourage landlords and tenants to negotiate settlements, and it is good to see that most of them have already done so; indeed, that was an important part of the feedback from witnesses this week. It is a sign that most commercial landlords and tenants have worked closely together to get through the crisis, and I pay tribute to them for doing that, because it is a recognition that we have all been in this together and that everybody needs to play their part in bringing flexibility where it is needed.
UK Hospitality estimated that around 60% of its members reached agreement with their landlords on any outstanding debt, but there is an estimate that around one in five have yet to reach a negotiated settlement. Perhaps some settlement discussions are still in progress.
We support clause 1 and we will vote for it to stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
“Rent” and “business tenancy”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause provides clarity with regard to which payments owed by a business tenant to their landlord under their tenancy contract will be considered to be rent for the purpose of the Bill. Rent includes contractual payments owed by the tenant to the landlord for occupation and use of the property, as well as payments collectively described as service charges and interest on any unpaid amount. Including both service charges and interest on any unpaid amount within the definition of rent will allow the arbitrator to consider a broad range of arrears that may be owed by the tenant to the landlord, rather than only the payments for occupation and use. The arbitrator will then consider whether relief should be awarded in respect of some or all of the amount owed.
The definition of business tenancy in the Bill is broadly consistent with the definition of business tenancy under section 82 of the Coronavirus Act 2020, which served to temporarily prevent landlords from evicting tenants. However, the Bill focuses on business tenants and their immediate landlords.
I commend the clause to the Committee.
Seema Malhotra
I thank the Minister for his opening comments on the clause.
Clause 2 defines the key terms that are central to the operation of this legislation, notably rent and business tenancy. Rent is stated to include the cost of using the premises and service charges, as well as interest on unpaid amounts relating to either, with VAT included. We have no concerns about this definition; it seems sensible and we hope that it is widely accepted.
Business tenancy means a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies. That Act applies to any tenancy where property is or includes premises that are occupied for the purposes of business. The Minister will have heard the concerns of the British Retail Consortium, raised on Tuesday, about the definition of the business tenancy. It has concerns that any tenancy contracted out of the 1954 Act would fall outside the scope of these protections. Will the Minister confirm the assurances that he gave the British Retail Consortium on that point?
As Kate Nicholls of UK Hospitality said in her evidence, also on Tuesday:
“It is important that this piece of legislation sits within the existing canon of property law”––[Official Report, Commercial Rent (Coronavirus) Public Bill Committee, 7 December 2021; c. 5, Q3.]
and that definitions are consistent with that existing canon. Subject to meeting the BRC’s concern about business tenancies, the definitions in clause 2 would in our view meet that test. I look forward to the Minister’s response. We support the definitions and will support the clause.
Paul Scully
Yes, I can confirm that tenancies to which part 2 of the 1954 Act applies are covered by the Bill, including where parties have agreed to exclude certain provisions of part 2 of that Act. I should also say, in reply to the hon. Lady’s earlier comments about future powers and what would happen in another coronavirus situation. The Bill does indeed contain a power that allows the provisions to be applied again in the event of future closure.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
“Protected rent debt”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause defines “protected rent debt”, a key concept of the Bill, so that landlords and tenants have certainty about what is in the scope of arbitration. The definition for protected rent includes rent that is owed to the landlord under the tenancy if the tenancy was adversely affected by coronavirus, and excludes rent that the tenant owed to the landlord either before the pandemic or after businesses were allowed to open for business. That is in line with the Government’s expectation that the market should now return to normal, with the contractual arrangements once again adhered to.
The clause also states that if all or part of the protected rent debt was satisfied by the landlord by drawing down from the tenancy deposit, the sum that was paid for the deposit should be considered protected rent debt and should still be considered unpaid.
Seema Malhotra
I thank the Minister for his opening comments on clause 3, which defines “protected rent debt”. Rent is protected if the tenant was adversely affected by coronavirus within the meaning of clause 4 and the rent is attributable to a period that is protected within the meaning of clause 5.
Subsection (3) states that rent consisting of interest due on an unpaid amount is
“attributable to the same period of occupation…as that unpaid amount.”
That means that if a tenant is paying interest on rent due, the interest is also considered to be from the same period of occupancy as the rent. Subsection (5) sets out that if rent due is only partly attributable to a period of occupation, only the rent due that is attributable to that period qualifies as protected rent. That means that if there is rent due that is attributable to occupation by the tenant both outside and within the protected rent period, only that which was within the protected period is regarded as protected rent. It is likely there will be some confusion around that. Perhaps the Minister intends to have clear examples and guidance so that those who use the legislation will be clear about how they need to do their calculations.
Clause 3 does clarify what is meant by protected rent debt. We support the definition and will vote for the clause.
Paul Scully
Indeed, guidance will be really important to ensure that arbitral services and bodies have all the information that they need to make a correct definition. As the hon. Lady says, including interest is important, otherwise the burden of meeting interest under punitive contractual rates would defeat the object of the Bill.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
“Adversely affected by coronavirus”
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 4 is essential. It establishes which businesses can access arbitration and the Bill’s temporary moratorium on other measures. We appreciate that the pandemic has been difficult across the economy, but we are seeking to target this measure at those businesses most directly affected so that we can resolve cases quickly, providing businesses with certainty while protecting jobs in our most vulnerable sectors, such as hospitality, retail and leisure. That is important not only for eligible businesses, but for the individuals who contribute to them.
Clause 4 provides that a business was adversely affected by coronavirus, and therefore its rent may be in scope, if it was required by regulations to close all or part of its business or premises for any of the time while closure requirements were in place: from 21 March 2020 until 18 July 2021 for England, or until 7 August 2021 for Wales. If a business was subject to a closure requirement for any period within those times, it meets the test, regardless of whether it was allowed to carry out other limited activities such as takeaways. Without that targeted approach, we could see rent issues from the pandemic unresolved for a significant amount of time, so I urge the Committee to support the clause.
Seema Malhotra
I thank the Minister for his remarks. As he described, clause 4 clarifies what is meant by businesses “adversely affected by coronavirus”. It states that a business can be categorised as adversely affected if part or all of it was obliged to close due to coronavirus restrictions during the relevant period. It also states that any specific limited activities that the business was able to take part in during its forced closure can be disregarded as immaterial for the purposes of the Bill. We think that is very important, otherwise we will have situations in which one side or the other says that a business is not eligible for the scheme for the purposes of arbitration, so we support having that clarity in the Bill.
The clause also defines the relevant period as 21 March 2020 to 18 July 2021 for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. We do not object to those dates—there are clear reasons why they have been chosen, given that Government policy changed around those times. My only concern is that the tail end of recovery has been slower in some sectors, such as aviation, travel and tourism, than in others. The dates on which some businesses were able to reopen and start to do much better did not apply in the same way to all businesses in all sectors.
Although we have not tabled any amendments to those dates and we support clause 4, it will be important for the Minister to keep this Bill under review, bearing in mind that there has not been an equal recovery for businesses. If concerns are raised with him about businesses that may or may not be eligible, but have been impacted by coronavirus closures or consequences, it is important that some amendments could be made in due course, should they be required.
Paul Scully
I think we all acknowledge the fact that this is not a perfect science: some businesses that were suffering through the lockdown will continue to have a slow recovery. This is a focused Bill dealing with a particular kind of ring-fenced debt, and we want to make sure that we encapsulate this issue, so that we do not make the Bill and the process of arbitration too big in a way that benefits nobody. I think the Bill is proportionate, and will have the right effect.
In terms of a long tail of recovery, we obviously need to look at the support from a holistic point of view, and at the additional measures that we have put in place to support businesses, including the sectors that the hon. Lady mentioned. Importantly, we will continue to flex. I have been on calls today, and over the past few days—especially with plan B being announced—with representative organisations, and people from hospitality in particular, which is hard pressed. We will continue to listen and respond.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
“Protected period”
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 5 sets out the protected period from which rent can be referred to arbitration. The Government are committed to supporting landlords and tenants to resolve rent that has built up. For the arbitration scheme to do so, the parties and the arbitrator must be clear on from which periods rent can be referred to arbitration. Closure requirements and other restrictions were lifted at different times for different types of businesses as part of the appropriate road map out of restrictions, and the reducing of alert levels. That is why the protected period runs from the start of closure requirements until the last day that a business was either required to close or subject to another specific restriction on how it could operate or use its premises.
The period is not affected by general restrictions that applied to all businesses and requirements to give or display information, such as requirements to display information about the wearing of face masks, but where particular types of businesses were subject to a restriction under coronavirus regulations, the period takes account of that restriction. It is intended to take a clear and appropriate approach to the rent debt that may be referred to the arbitrator. The arbitrator will not necessarily award relief in respect of all debt relating to the period, as the appropriate relief will depend on the circumstances, but I urge the Committee to support the clause.
Seema Malhotra
I thank the Minister for his remarks. Clause 5 defines what is meant by the protected period and specific coronavirus restrictions for the purposes of the Bill. He has outlined the dates for the protected period, and that a specific coronavirus restriction means any requirement other than a closure requirement that regulated any aspect of the way that a business was to be carried on. Requirements to provide information on premises, or requirements that applied more generally to businesses, are not included under the specific coronavirus restrictions.
Clearly, as we have discussed, many businesses continued to experience significant covid impacts beyond the end of the protected period. However, we recognise the need to strike the right balance between the interests of landlords and tenants, and therefore the need to limit the protected period to one that is clear about how arbitrators will look at and assess claims and that is clearly aligned with policy. I hope that the Minister will have heard the reflections of stakeholders, including Andrew Goodacre from the British Independent Retailers Association, that businesses that were not forced to close—essential businesses—may still have suffered significant economic consequences.
We want to ensure that there is fairness, and that all viable businesses that suffered an impact will be supported to continue through the ongoing recovery. Overall, we support the measures and definitions in clause 5, and will support it standing part.
Paul Scully
The hon. Lady is right: this is a focused Bill, looking at the first period of the pandemic. However, as I have said, we will continue to listen to various sectors and work with them to ensure that we can recover equally.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
“The matter of relief from payment”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause sets out the two questions that the arbitrator must decide before considering what, if any, relief should be given to the tenant. That is important because it ensures that arbitration capacity and relief are targeted at those who need it most, namely those whose rent has been impacted by closures and restrictions within the ring-fenced period. The first question is whether there is any protected rent debt. The second is whether the tenant should be given any relief in respect of the payment of that debt and, if so, what type of relief.
The clause also sets out clearly the types of relief that an arbitrator can award in respect of protected rent debt: writing off part of or all of the debt; giving more time to repay the debt; or reducing or writing off any interest on the debt. Setting those clear boundaries will help arbitrators to reach awards quickly and provide adversely impacted businesses with the certainty they need to recover from the pandemic.
Seema Malhotra
I thank the Minister for his opening remarks. Clause 6 clarifies references to the matter of relief from payment—that is, the subject to be dealt with by an arbitrator under the legislation. It relates to whether there is protected rent debt and, if so, whether the tenant should be given relief from the payment of that debt. The Minister has outlined what that means but, to summarise again, it is the writing off of the whole or part of the debt, giving time to pay the whole or part of the debt, and reducing any interest payable on the debt. It is right that arbitrators are given the flexibility to provide for a form of relief that is appropriate for the specific circumstances of a case. Indeed, one or more forms of the relief may be appropriate depending on the circumstances of the landlord and the tenant. We support these measures and clause 6 standing part of the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Approval of arbitration bodies
Question proposed, That the clause stand part of the Bill.
Paul Scully
The arbitration scheme will be delivered by independent arbitration bodies. The clause gives the Secretary of State the power to approve arbitration bodies for that purpose. Arbitration bodies will have to demonstrate that they are suitable before being approved. Further information on what constitutes “suitable” and how to become an approved body will be published on gov.uk.
The Secretary of State can also withdraw approval status if the body is no longer suitable to deliver arbitration services. The Secretary of State must notify the body if that is the case, and the body will have an opportunity to make representations. Under the clause, a list of approved arbitration bodies must be maintained and published by the Secretary of State, enabling parties to a dispute to know to whom an application for an arbitration may be made. The clause is therefore crucial to enable a high-quality, independent and accessible service to be delivered to landlords and tenants.
Ruth Cadbury (Brentford and Isleworth) (Lab)
It is a pleasure to serve under your chairship, Mrs Murray. When the Government create a dispute resolution process, as the Bill does, it goes without saying that there needs to be arbitration bodies. We naturally support the clause—although we have a couple of amendments coming up—as it is inevitable and clear. However, I want to address a point in subsection (7), which states:
“The Secretary of State must maintain and publish a list of approved arbitration bodies.”
We hope that the list will be easily discoverable and regularly updated. On subsection (6), we hope that the Government will ensure that the process of removing arbitration bodies that are not up to scratch is done transparently and speedily. It is absolutely essential that both parties to arbitration—landlords and businesses—have confidence, that the process is fair, and that arbitrators are trusted and appropriately experienced. Although we seek Government reassurance on that, we will support clause 7.
Paul Scully
I reassure the hon. Lady that we want to ensure that everything is transparent and easy to find. People are hard pressed and have to contend with the survival of their businesses, so it is really important that we give them as much information as possible. Indeed, we want to ensure that, should we be required to remove any arbitration services from the list, we do so in an open and speedy way, not least because we want to get through the process as quickly as possible—there is no point in dragging it out—for the benefit of landlords and tenants.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Functions of approved arbitration bodies
Ruth Cadbury
I rise to speak to the amendment, which seeks to clarify the definition of “debt claims”, including claims against guarantors. Currently, “debt claim” has the same meaning as in paragraph (2) of schedule 2, and “tenant” includes a person who guarantees the obligations of the tenant under a business tenancy.
The purpose of the amendment is to provide extra clarity on whether the protections given against county court action are also given to the guarantors of tenancies. We do not want to create a back door by which tenants are protected from enforcement but the guarantors are still liable. It is crucial that the Government ensure that guarantors of tenants are also protected against debt claims during the prescribed six-month period. We do not want a common-sense measure to be circumvented by landlords going after guarantors with no limit.
Ruth Cadbury
I was speaking to the wrong amendment, Mrs Murray. I apologise to Committee members and staff.
I beg to move amendment 1, in clause 8, page 6, line 25, at end insert—
“(2A) The Secretary of State must by regulation specify the meaning of ‘qualifications’ and ‘experience’ for the purpose of this section.”
This amendment would require the Secretary of State to specify by regulation to meaning of qualifications and experience in section 8.
Amendment 1 would require the Secretary of State to specify by regulation the meaning of “qualifications” and “experience”. A fair arbitration process is crucial for businesses, landlords and all involved to have faith in the new system. The Bill states that there is a list of approved arbitrators who are appointed
“by virtue of their qualifications or experience”.
Our straightforward amendment would require the Secretary of State to specify just what those qualifications and experience should be.
During the Committee’s first oral evidence session, we had witnesses who focused on the importance of financial qualifications for the arbitration, because most cases will focus on the financial situation for the parties. One witness had an alternative view, however, and suggested in their written evidence that arbitrators should be legally qualified due to the complex nature of some cases and the need for a fair, transparent process.
When the Bill was introduced, we said that it was crucial that businesses have faith in the whole of the arbitration process. Equally, we said that it was important that the process is transparent and fair. That is why our amendment would require the Secretary of State to outline just what the necessary qualifications and experience should be. That would reassure all those involved in the process that it is being overseen by trusted and qualified individuals and groups.
Paul Scully
I think that we all agree about the importance of having the right arbitrators in place to carry out this important work. The Bill already contains steps to ensure that arbitrators will have the necessary qualifications and experience. First, the Secretary of State may approve an arbitration body only if it is considered suitable to carry out its required functions. If the Secretary of State considers an arbitration body not to be properly carrying out its functions, including those relating to the assessment of qualifications and experience, the Secretary of State can withdraw approval.
Secondly, the arbitration bodies themselves are required to maintain a list of arbitrators that are suitable to work on cases that fall under the Bill by virtue of their qualifications or experience. It is right for the arbitration bodies, as the experts on this matter, to determine which arbitrators are suitable given their qualifications and experience. Arbitration bodies that have demonstrated an interest in becoming approved bodies are widely recognised and respected in the field of arbitration, and they are experienced in assessing arbitrators through their accreditation services. That will ensure that we do not unfairly exclude arbitrators by setting in legislation definitions that are too narrow.
However, we recognise that we should not take a one-size-fits-all approach to arbitration, so the Bill provides that arbitration bodies have the flexibility to appoint arbitrators to cases that match their specific qualifications and experience. Furthermore, if an arbitrator does not possess the qualifications required for a particular case, the arbitration body is required to remove them from that case.
The Bill already ensures that arbitration is carried out by suitably qualified and experienced arbitrators. I hope that hon. Members agree that the arbitration bodies are best placed to make this judgment, notwithstanding the clear evidence that we heard of the kind of experiences that we, landlords and tenants expect of arbitrators. I therefore request that the amendment be withdrawn.
Ruth Cadbury
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 8 sets out the statutory functions of arbitration bodies approved by the Secretary of State to carry out arbitration services. It is key to enabling the arbitration market to deliver the system that is required to efficiently resolve outstanding rent disputes. The arbitration bodies will be given powers to appoint arbitrators to a case, as well as to remove them if they are deemed unsuitable on certain grounds. The clause also provides that arbitration bodies will oversee cases and set fees for arbitration services, subject to any cap on fees that may be imposed by the Secretary of State under clause 19, as well as dealing with financial arrangements.
If grounds for removal exist, an arbitration body must remove the arbitrator from the case—for example if an arbitrator does not possess the qualifications required for the arbitration. That is integral to the delivery of the arbitration process. It also provides for reporting, to enable the Secretary of State to have clear sight of the progress of the arbitration process.
Ruth Cadbury
We have no further amendments to the clause, and we have no further comments to make at this point.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Period for making a reference to arbitration
Ruth Cadbury
I beg to move amendment 2, in clause 9, page 7, line 11, leave out subsection (4) and insert—
“(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This amendment would require regulations made under this section to be subject to the affirmative procedure.
The Chair
With this it will be convenient to discuss amendment 3, in clause 9, page 7, line 12, at end insert—
“(4A) The Secretary of State must prepare and publish a report giving reasons for any extension of the period mentioned in subsection (2) and must lay a copy before Parliament.”
This amendment would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration.
Ruth Cadbury
Amendment 2 covers a much wider issue around trust and transparency: the way in which Parliament has full, open access to decision making. The amendment is similar to amendments that Labour colleagues have introduced before in other pieces of legislation that we have otherwise been supportive of on the whole, as we are of this Bill.
Amendment 2 would require regulations to be made according to the affirmative procedure. It would ensure that Parliament can fully scrutinise the extension of the existing six-month period in which businesses can go through the arbitration process. The Bill requires regulations to go through the negative procedure, which means that they would be discussed or stopped only if there was an objection. Our amendment would make the procedure affirmative, meaning that Parliament would have to approve them.
In recent days, we have seen that the Government’s approach to public health issues and, indeed, to the wider impacts of coronavirus can change rapidly, and it is crucial that MPs and parliamentarians are able to debate, scrutinise and assess such changes. Our amendment therefore calls for both Houses to approve any extension to the arbitration process, to ensure that it works for businesses and landlords across the country.
Paul Scully
I thank the hon. Lady for her summary of the amendments. The Bill aims to resolve protected rent debt quickly and support commercial tenants and landlords to return to normal operations as soon as possible. We encourage landlords and tenants to resolve unpaid debt between themselves. The arbitration process is designed to allow for negotiation and for the parties to make considered proposals to lead to appropriate outcomes.
The timeframe for making references to arbitration will encourage a speedy resolution of the disputes in scope, and is meant to deal with a particular set of circumstances at a critical time. We believe that six months is enough time to allow eligible tenants and landlords to apply for the arbitration process. However, if there is evidence that the six-month period is not enough, the Secretary of State can, using the power in clause 9, extend it to allow more time for the eligible parties to apply. Any evidence that the power is needed is unlikely to become available until well after the Bill comes into force; it may not become apparent that such an extension is necessary until close to the expiry of the six-month period. The length of an extension would depend on the circumstances, but would be based on feedback from stakeholders. It would be only for as long as is absolutely necessary.
I appreciate the interest in transparency shown by the hon. Member for Brentford and Isleworth, and I reassure her that the decision to extend would be based solely on evidence from tenants, landlords and arbitrators. Officials will continue to monitor the process if issues with the time period arise.
Regulations to extend the application period may need to be made relatively quickly in order to react, so it is important that the Bill remains flexible in case more time is needed. It remains important for the Government to work with Parliament. None the less, we want to make sure that the process can be resolved as quickly as possible, without any undue delay or concern that landlords and tenants will not have their case heard as quickly as possible. We therefore consider the negative procedure to be appropriate in the circumstances. I welcome the hon. Lady’s contribution, but I hope in this instance that she will withdraw the amendments.
Ruth Cadbury
If the two amendments are being considered together, I would also like to speak specifically to the other one.
The Chair
I said at the beginning that we had come to amendment 2, with which it would be convenient to debate amendment 3. If the hon. Lady would like to include her remarks on amendment 3 when summing up, I am happy to allow that.
Ruth Cadbury
Thank you, Mrs Murray, that is very helpful. Amendment 3 would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration. Like amendment 2, amendment 3 is crucial in improving and expanding the scope of parliamentary scrutiny. It calls for the Government to publish a report setting out the reasons given for any extension of the existing six-month arbitration process.
As we said on Second Reading, it is crucial that the Bill has the support of businesses and that the arbitration process is transparent and open, which should include any extension of the period in which rent arrears can be brought into arbitration. Our amendment therefore calls for the Secretary of State to publish and lay before Parliament the reasons for extending the arbitration process.
Paul Scully
I hope that, in my opening remarks, I made clear our reasons for asking the hon. Lady to withdraw the amendment.
Ruth Cadbury
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
The purpose of the clause is to specify the time limit for which arbitration under the Bill will be available. It will encourage landlords and tenants to engage and attempt to resolve in-scope disputes in a timely manner. There is a power for the Secretary of State to extend the time limit if it is required. The arbitration process should be seen as a last resort and our strong preference is for landlords and tenants to negotiate using the updated code of practice.
Before either party can make a reference to arbitration, on notification by the applicant that they intend to make a reference, the parties are expected to offer solutions with supporting evidence to try and resolve the matter, meaning arbitration should be a last resort. Under the Bill, parties will have six months to make a reference to arbitration to give them time to go through those steps. The Secretary of State has the power to request reports from approved arbitration bodies to enable him to monitor their progress and also has a delegated power in the clause to extend the six-month period, should monitoring suggest that it is necessary to do so.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Requirements for making a reference to arbitration
Question proposed, That the clause stand part of the Bill.
Paul Scully
A party that wants to take their dispute to arbitration must first go through a process of notifying the other party and allowing the other party to respond. The clause sets out the timings and the steps to take. The intent is to give both parties enough time through a period of up to at least 28 days from the date of initial notification to try and reach an agreement pre-arbitration.
Arbitration provided by the Bill cannot be used where tenants are subject to, or are debtors under, certain legal compromises or arrangements for debt recovery. That is because the Bill aims to focus specifically on unagreed rent arrears and to encourage negotiations where possible.
Ruth Cadbury
I thank the Minister. Again, we do not propose to amend or oppose the clause. I appreciate that the Government have put these measures in place for a reason and we welcome them. I would like to know whether the Government have made any assessment of how many businesses would be unable to go to arbitration on the basis of these limits.
Paul Scully
I am not aware that we have made a specific assessment. We have made assessments on the businesses that come within scope and would otherwise go to arbitration because they have not been able to have a satisfactory discussion beforehand. These positions allow parties time to reflect on whether they can reach that settlement in a fair and open process.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Proposals for resolving the matter of relief from payment
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause requires the party making a reference to arbitration to include with that reference a formal proposal and supporting evidence. The other party may respond with their own proposal, accompanied by supporting evidence, within 14 days of receiving the applicant’s. The process therefore gives each party the opportunity to review the other’s proposals. The parties then have 28 days from their initial formal proposal to submit a revised proposal accompanied by further supporting evidence—or longer if both parties or the arbitrator agree to allow more time, giving each party time to reflect and respond. That is important, because it facilitates the possibility of a settlement occurring early on in the arbitration process once a reference to arbitration is made. It supports our aim of giving businesses certainty as soon as possible. I commend the clause to the Committee.
Ruth Cadbury
I thank the Minister. Again, we do not intend to amend or oppose the clause at this point. We support the proposals for resolving the matter of relief, because, as the Minister has said, it allows tenants and landlords to reach an agreement. We know from stakeholder feedback that this process is welcomed by businesses. It will provide relief, especially because of the block on any court action that it provides. We also welcome it because it allows both parties to make proposals to tackle debt relief. Equally, we want to make sure that there is a level playing field in the arbitration process. We do not want larger companies to be able to muscle through the arbitration process because they have greater levels of resources—both financial and in levels of expertise and so on.
Although we welcome the fact that the process can be extended with agreement, there is an equal chance that, if the process extends and extends even further, it could act as an extra burden on smaller businesses. That is why we hope the Government will look into the accessibility and ease with which small businesses, in particular, can engage in the arbitration process.
Paul Scully
We will continue to work with the arbitration services that have expertise in this area, especially as the measure is based on systems specifically targeted at smaller businesses and smaller disputes.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Written statements
Question proposed, That the clause stand part of the Bill.
Paul Scully
Statements of truth confirm the veracity of written statements submitted to the arbitrator, and they will be required to verify any written statements provided to the arbitrator—whether by one of the parties or another person—that relate to a matter relevant to the arbitration. An unverified written statement can be disregarded by the arbitrator. It is standard practice in arbitration processes to require a written statement to be verified by a statement of truth. That ensures that parties only make written statements that they believe to be true, ensuring that arbitral awards have a sound basis. I urge the Committee to support the clause.
Ruth Cadbury
This is a welcome clause and one that we support. It is vital that statements given to the arbitrator are truthful. That will be crucial when viability is being assessed. Although we have expressed the importance of viable businesses being supported, we appreciate that this is a two-way street, and that businesses need to provide truthful and full information to the arbitrators, as, of course, do landlords. We support the clause.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Ordered, That the Order of the Committee of Tuesday 7 December be amended, in paragraph 1(b), by leaving out “and 2 pm”.—(Craig Whittaker.)
Ordered, That further consideration be now adjourned. —(Craig Whittaker.)
Commercial Rent (Coronavirus) Bill (Fourth sitting)
Tuesday 14th December 2021
(2 years, 11 months ago)
Public Bill CommitteesRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Notices of Amendments as at 10 December 2021 - (10 Dec 2021)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
The Chair
Before we begin, I have a few reminders for the Committee. Please switch electronic devices to silent or off. No food or drink is permitted during sittings of the Committee, except for the water provided. Members are encouraged to wear masks when they are not speaking, in line with Government and Commission advice. Please give one another and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That may be done at home or in the testing centre on the estate. Hansard colleagues would be grateful if Members emailed any speaking notes to hansardnotes@parliament.uk.
Clause 13
Arbitration awards available
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
As usual, Mr Hosie, it is a pleasure to serve under your chairmanship.
The clause sets out what awards an arbitrator may make following a reference to arbitration. It provides clarity to arbitrators and parties considering arbitration about the criteria for successful referral.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is pleasure to serve under your chairship, Mr Hosie.
Subsection (3) requires an arbitrator to dismiss a reference if they find that the tenant’s business “is not viable” and
“would not be viable even if the tenant were to be given relief from payment”.
Will the Minister say more about what constitute viable and unviable businesses? Groups representing the hospitality sector, for example, have made it clear that the seasonal nature of their businesses should be reflected in the viability test. As well as being provided with guidance, arbitrators should also have the right level of flexibility.
Paul Scully
I am happy to give the hon. Lady that assurance. The reason why we do not have a specific definition of what constitutes viability or affordability is that businesses models vary greatly, including with seasonality, and within and between sectors. Under clause 16, which we will consider later, we include factors that the arbitrator should consider when assessing the viability of the tenant’s business.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Arbitrator’s award on the matter of relief from payment
Question proposed, That the clause stand part of the Bill.
Paul Scully
The Bill contains principles that are key to ensuring that rent debt is resolved in a proportionate way for tenants and landlords. The clause sets out how arbitrators must consider those principles when making an award under the Bill.
Seema Malhotra
I have a couple of questions about the clause. First, will the Minister clarify why the Government have chosen to make the repayment time under subsection (7) 24 months? Has he concluded that that will be sufficient time for businesses to repay what they owe, even if further covid restrictions are put in place? The current circumstances are a cause for concern to businesses that have seen revenues drop while costs continue. Secondly, reflecting the concerns of stakeholders including the Pubs Advisory Service, will the Minister clarify whether subsection (2) implies that the arbitrator will consider only the final proposal when making the award, or will they consider all proposals made by both parties in the round?
Paul Scully
In awards that give tenants time to repay the debt, tenants will have no longer than 24 months to do so. That recognises that additional time to repay may help businesses to recover and start to trade as normal, while ensuring that the issue of rent debts does not drag on unnecessarily. As for how it works, the scheme uses a key aspect of pension arbitration, by which each may propose a financial solution to pay protected rent, and the arbitrator will select the proposal that is most consistent with the principles set out in the Bill, assuming that one at least follows those principles. Otherwise, the arbitrator must make whatever award the arbitrator considers appropriate when applying the principles.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Arbitrator’s principles
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 1—Review of awards—
“(1) The Secretary of State must no later than three months following the day on which this Act is passed conduct a review to assess whether sections 15 and 16 of this Act have been interpreted consistently by approved arbitration bodies.
(2) In conducting a review under subsection (1), the Secretary of State shall have regard to published awards.
(3) If a review under subsection (1) identifies material inconsistencies in the interpretation of sections 15 and 16 of this Act, the Secretary of State must issue further guidance or amend existing current guidance to arbitrators about the exercise of their functions under the Act.”
This new clause would require the Secretary of State to conduct a review of awards to assess whether sections 15 and 16 of the Act have been interpreted consistently and publish or amend guidance as necessary.
Seema Malhotra
New clause 1 is a probing amendment. It would require the Secretary of State to conduct a review of awards to assess whether sections 15 and 16 of the Act have been interpreted consistently and to publish or amend guidance as necessary. We have heard issues raised about the interpretation of viability of businesses and making sure there is enough experience with arbitrators to ensure a consistent approach to resolving rent debt. In tabling the new clause we are seeking a review. It is helpful to know if the Secretary of State is seeking feedback on how the system is working and whether there are inconsistencies identified, which may require further guidance to be given to arbitrators about the exercise of their functions under the Bill. That is in the interest of strengthening the regime and trust in it among tenants and landlords alike. I would be grateful for the Minister’s comments on what feedback process he is expecting to see otherwise, so that we can make sure there is learning through the system and that it works effectively.
Paul Scully
We are committed to the principles in the Bill. That is why we have included them in the legislation. We will require arbitrators to follow them in their work. Arbitration bodies will only appoint arbitrators that are considered suitable to carry out arbitration as set out in the Bill. These bodies also have the power to oversee any arbitration when an arbitrator is appointed.
The arbitration system is designed to be a quick, effective and impartial solution to rent debts that cannot otherwise be resolved. Requiring a review of the arbitration process within three months of the Bill being in force could slow that process down. It may add additional steps and requirements for arbitrators who have already proven their suitability and impartiality for the role. It may postpone the appointment of arbitrators, further delaying cases if arbitration bodies must await the findings of the review before acting.
If new or revised guidance were required following a review, it would take additional time to produce and would not be in place for many cases referred to arbitration. We currently expect that all applications to arbitration would be made within six months and that cases should be resolved as soon as practicable afterward. Under the Bill’s provisions, the Secretary of State can also request a report from approved arbitration bodies covering the exercise of their functions under the Bill, including details on awards made and the application of the principles set out in the Bill on arbitrations they oversee.
There is a requirement for arbitrators to publish details of awards made, including the reasons behind it. That will show how arbitrators have applied the principles in the Bill to come to their decision. If there is any need to revise the guidance, for example to clarify or add new information for arbitrators, the Secretary of State is already able to do so. In summary, the Bill already contains several ways of monitoring the application of its principles. If the need arises, guidance can be updated to ensure that arbitrators have the information required to carry out their work. I do not believe that a required review would benefit the aims of the Bill. Therefore, I hope the hon. Member will withdraw her new clause.
Seema Malhotra
On the basis that there are other mechanisms that the Minister will—I use the word will—be using to ensure that there is feedback from the system, we will not push the new clause to a vote today. However, I do think it will be important to keep this under review. I expect that on Report in the new year, when circumstances might be different, we may want to look again at some of these amendments.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16
Arbitrator: assessment of “viability” and “solvency”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause is important because it relates to the key principles of viability and solvency that underpin the arbitration process. Arbitrators must ensure that an award maintains or restores a business’s viability as long as it is considered that it would be preserving a landlord’s solvency.
Seema Malhotra
Subsection (2) lists factors to which an arbitrator may have to have regard when assessing landlord solvency, so far as the information is known. Could the Minister confirm whether further details about this evidence will be released by the Government? Again, I am just asking about consistency in the arbitration process.
Subsection 3 states that the arbitrator must disregard the possibility of either party borrowing money or restructuring their business. We support this measure and think it will contribute to ensuring that the arbitration process is fair. However, if would be helpful to hear some clarification on the regulations outlined in clause 16, and what further guidance will be forthcoming.
Paul Scully
I have talked about the fact that in this clause there are a number of factors when assessing the viability of a tenant’s business. I would also point the hon. Lady to the code of practice, which is not only for the use of the arbitrator, but for people who fall outside the scope of the Bill. It contains a non-exhaustive list of evidence that can be considered when determining viability and affordability, including existing and anticipated credit debt balance; business performance since March 2020; the tenant’s assets, some of which may be liquid, others of which may be plants or machinery; the position of the tenant with other tenancies; insolvency of a major customer; unexpected retentions or knowledge of a lack of working capital; or loss of key personnel or staff redundancies. Further factors can be found in annex B of the code of practice.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Timing of arbitrator’s award
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause establishes the timeframe for making awards, requiring arbitrators to make an award as soon practicable or, in the case of a normal hearing, within 14 days.
Seema Malhotra
We recognise that both businesses and landlords will benefit from prompt solutions to rent debt. Can the Minister explain why a different time frame is appropriate for the making of the award depending on whether an oral hearing is held or not? It would also be helpful if he could explain what
“as soon as reasonably practicable”
means in this context. What would be a reasonable period of time for the award to be made?
Stakeholders have suggested to us that under the pubs code, awards and adjudications can take up to a year to be published. Presumably the Minister can confirm that this would certainly not be reasonable. He has talked in general terms about time limits before, but given that there is no stipulated time limit under clause 17(1), what recourse would the parties have where no award is forthcoming in a timely manner?
Paul Scully
Although the applicant making a reference to arbitration must submit a formal proposal, there is the option for the respondent to also submit a formal proposal. Both parties also have the option to submit revised proposals. In addition, some cases may be more complex than others, and the arbitrator may need to ask for further information. The Bill therefore provides that the arbitrator must make the award as soon as reasonably practicable, which will allow for any additional work required because of the complexity of the case. I assure the hon. Lady that we are indeed hoping and expecting such cases to be resolved within a matter of months rather than, as she described in relation to the pubs code, anywhere approaching a year.
When there is a long period, there is a clear date on which the hearing concludes and evidence has been given, so that is why the Bill provides that the arbitrator has 14 days from the day on which the hearing concludes to issue such an award. Some cases that go to oral hearings may have added complexities, so the arbitrator may need more than 14 days to consider arguments, facts and evidence that have arisen. There is a discretion there for the arbitrator to extend the time limit if they consider that it would be reasonable, in all circumstances.
Mick Whitley (Birkenhead) (Lab)
Will there will be any retrospective payments? In the bundle of evidence some companies submitted, they say that they have been pressed for their outstanding debt. If this Bill goes through, does that mean that any retrospective payments will be made by the arbitrator?
Paul Scully
I will write to the hon. Gentleman if I am getting this wrong, but I think the arbitrator can take the whole situation into account, including what has been paid and the evidence that has been given, when making the final judgment. I will write to the hon. Gentleman if that is not as full an answer as he wants.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18
Publication of award
Question proposed, That the clause stand part of the Bill.
Paul Scully
The arbitrators will be required to publish awards and the reasons for making them in the interest of transparency, but they will also be required to exclude confidential information for anything published, unless notified by the person to whom the information relates that they consent to its publication. Landlords and tenants can ask for confidential information to be redacted.
Seema Malhotra
We support the clause and the exclusion of confidential or personal information that may cause harm or concern. Labour believes that the arbitration process established under the Bill should be subject to appropriate transparency, with appropriate safeguards for commercially sensitive or other confidential information. The publication of awards should also support a consistent approach being taken across cases heard under the regime.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Clause 19
Arbitration fees and expenses
Seema Malhotra
I beg to move amendment 4, in clause 19, page 12, line 6, leave out “may” and insert “must”.
This amendment would require the Secretary of State to make regulations specifying limits on arbitration fees.
The Chair
With this it will be convenient to discuss amendment 5, in clause 19, page 12, line 8, after “question” insert
“and having regard to the accessibility and affordability of the arbitration process.”
This amendment would require the Secretary of State to consider the accessibility and affordability of the arbitration process when specifying limits on arbitration fees.
Seema Malhotra
I am pleased to move amendment 4, which relates to limits on arbitration fees, and speak to amendment 5, which relates to the accessibility and affordability of the process. We recognise that parties have to meet their legal and other costs, but we believe that arbitration fees and expenses should be proportionate to the arrears that are the subject of the dispute, and that they should not create a significant cost for the parties. I am sure the Minister recognises the harmful effect that a high arbitration cost would have on businesses that are already struggling, and it is only those in very difficult circumstances that are going into the process in the first place.
Clause 19 gives the Secretary of State the discretion to specify ceilings for arbitration fees in secondary legislation. We believe the Secretary of State should make such regulations to provide a cap, which would be the effect of amendment 4. We have also tabled amendment 5, which
“would require the Secretary of State to consider the accessibility and affordability of the arbitration process when specifying limits on arbitration fees.”
That is to ensure that, when setting new limits, the Secretary of State explicitly takes into account how the limits will affect the ability of business tenants and landlords to enter the arbitration process. I hope the Minister recognises the importance of ensuring that arbitration is not too costly for either landlords or tenants, particularly as businesses are again seeing falls in revenues at this stage. There is a cross-party desire to tackle rent debt, but we want the arbitration process to work. For that, businesses must be able to afford to enter the process.
I would be grateful if the Minister could respond to a concern raised by a stakeholder about the fees and costs that the arbitration bodies may apply. I understand that there is a £750 fee associated with a complaint under the rules of certain arbitration bodies. Would such a cost be included within the cap? I thank the Minister in advance for his response.
Paul Scully
As the clause stands, the Secretary of State will have the delegated power to make regulations specifying limits on the fees and expenses of arbitrators, but if the power is exercised, approved arbitration bodies will still have the discretion to set fee levels up to the cap limit. We have adopted a market-based approach that enables arbitration bodies to set fee levels for themselves, because they are best placed to decide, given their experience of costing arbitration schemes to make them affordable for parties and attractive enough for arbitrators to take on cases. The Secretary of State’s powers are intended to be used only when circumstances determine that it is appropriate.
We have designed the arbitration scheme to be affordable, and we are working with arbitrators to agree the cost schedules, which may answer the hon. Member’s question. Setting fee levels at this stage would be counterproductive, because we do not know what the market rate is while discussions are ongoing. A market-based approach is the optimum way to ensure that, on one hand, there is enough capacity in the system to deal with the case load and that, on the other hand, fees are affordable. Hon. Members have also asked that an express requirement be inserted that would require the Secretary of State to have regard to the accessibility and affordability of the arbitration process when specifying those limits. As I said, affordability is an important consideration in our discussions. It will be an important factor that will determine accessibility. We will take it into account when deciding if and how to exercise this power.
Seema Malhotra
I thank the Minister for his remarks, but I do not think that they approach the heart of the debate. I would like to push amendment 4 to a vote, because this is an important issue.
Question put, That the amendment be made.
Paul Scully
Clause 19 concerns the fees and expenses of the arbitrators of approved arbitration bodies. We want to make sure that we have capacity and that it is affordable. If the cost does indeed prove to be a barrier, we can cap the fees to ensure that it remains affordable.
Seema Malhotra
Notwithstanding the concerns we have just raised, which we will continue to pursue, we support clause 19.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Oral hearings
Question proposed, That the clause stand part of the Bill.
Paul Scully
Being mindful of European convention on human rights considerations and the right to a fair trial, it is important that landlords and tenants have the option of a hearing. Any hearing would be in public unless the parties agreed otherwise. An oral hearing would add time and costs to the arbitration process, and the parties would be responsible for meeting those costs. This clause is important, as it gives the parties the right to an oral hearing and establishes the process for doing so.
Seema Malhotra
Labour generally supports these measures, but it would be helpful to understand whether the Minister expects oral hearings to be the exception rather than the rule. As the Chartered Institute of Arbitrators made clear in evidence about the business arbitration scheme, there was an assumption against oral hearings, with a document-only approach, which keeps costs and time low and, as it would say, allows for a more efficient process. Will guidance set out when oral hearings might be necessary or appropriate? We would like to understand more about the cost of oral hearings. Can the Minister say what he might expect the cost of oral hearings to be? Would he explain what action the Government will take to ensure that all hearings are affordable?
Paul Scully
I can reassure the hon. Lady that we would expect oral hearings to be very much the exception, because we want to make sure that we get through the process for landlords and tenants as quickly as possible. Under clause 21, the Secretary of State will provide arbitrators with guidance on the process of the scheme, including in relation to their function and exercise under the Arbitration Act 1996, as modified by the Bill.
There are a number of areas, such as what evidence the parties should provide when attending any oral hearings, where there is a risk of being too prescriptive, as what is relevant may differ between cases. Guidance would therefore be more helpful than strict rules. However, the ability to go for an oral hearing will very much depend on the arbitrator’s skills and experience, and will take into consideration the landlord and the tenant—as I said, they do have a right to a fair trial. The costs would depend on the complexities of the case.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Clause 21
Guidance
Seema Malhotra
I beg to move amendment 6, in clause 21, page 13, line 3, leave out “may” and insert “must”.
This amendment would require the Secretary of State to publish guidance on the exercise of arbitrators’ functions and the making of references to arbitration.
The Chair
With this it will be convenient to discuss amendment 7, in clause 21, page 13, line 6, at end insert—
“(1A) Guidance issued under subsection (1)(a) shall provide further information as to how arbitrators should assess ‘viability’ and over what timescale for the purposes of section 16.”
This amendment would require guidance published under this section to include information on the interpretation of “viability”
Seema Malhotra
I will speak briefly to these amendments, which relate to viability. As we have outlined several times, we are asking how arbitrators would assess viability, and what skills and experience they would have to do that. We have tabled these probing amendments to seek guidance with information on the interpretation of viability.
There is benefit in having some flexibility, while still commanding the confidence of both sides, so that judgements can be made with the information available, but there is also a question of trust. We need confidence that the definition around viability will be interpreted consistently across arbitrators and arbitration bodies. Amendment 7 would reflect the concerns of stakeholders that guidance must address the meaning of viability and the timeframe over which it would be assessed.
Paul Scully
As the clause stands, the Secretary of State already has a delegated power to issue guidance. Hon. Members have asked that amendments be made to place a duty on the Secretary of State to issue that guidance. As I have explained, it is not necessary to require the Secretary of State to issue guidance, and it is neither necessary nor appropriate to be more prescriptive in the clause is.
Clause 16 already sets out a list of evidence that the arbitrator must have regard to when assessing viability. We have also set out a detailed, non-exhaustive list of the types of evidence that tenants, landlords and arbitrators should consider when assessing the viability of a tenant’s business, and the impact of any relief on the protected rent debt on the landlord’s solvency in annex B of the revised code of practice.
We are in ongoing discussions with arbitration bodies and landlord and tenant representatives to gauge what further guidance they need. We want to be informed by those discussions in deciding whether further guidance is needed and, if so, what precisely it should contain. If further guidance on viability is needed, we are prepared to produce it, but that is clearly covered by the clause as it stands.
It is essential that arbitrators maintain flexibility in assessing the viability of a tenant’s business, including the types of evidence required to make those assessments, so that they can be made in the context of each individual business’s circumstances. If guidance is too prescriptive, there is a risk of depriving arbitrators of that necessary flexibility, potentially resulting in unfair arbitration outcomes.
Seema Malhotra
I thank the Minister for his remarks. That was a very helpful set of comments, in light of what he has also outlined in relation to the ongoing discussions, which we are pleased to hear of—indeed, we have had discussions as well—as that is important.
Looking particularly at the pubs and hospitality sector, and other businesses with great variation in income, their repayments may need to happen over a more reasonable period of time. It is helpful to know that the Minister is considering where there may be differences between sectors, and recognises a system that takes into account the circumstances of individual businesses, because they can differ in how they are affected by slowdowns and so on.
I thank the Minister for his comments. It is certainly an area that we will keep under review. We will not press our amendment to a vote today. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause provides the power for the Secretary of State to issue statutory guidance to arbitrators or to tenants and landlords.
Seema Malhotra
We support the clause standing part of the Bill.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Modification of Part 1 of the Arbitration Act 1996
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 1 be the First schedule to the Bill.
Paul Scully
The clause introduces schedule 1 to the Bill. Rather than include a detailed procedure for the arbitration process in the Bill, part 1 of the Arbitration Act 1996 will apply by virtue of section 94(1) of that Act. The long-standing arbitration procedures that are well known to arbitration bodies and arbitrators will apply to arbitrations under the Bill.
Seema Malhotra
The Minister outlined the clause and how it introduces schedule 1. We support the measures and will vote for the clause and the schedule to stand part of the Bill.
Question put and agreed to.
Clause 22 accordingly ordered to stand part of the Bill.
Schedule 1 agreed to.
Clause 23
Temporary moratorium on enforcement of protected rent debts
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 8 in schedule 2, page 19, line 3, at end insert—
“whether against the tenant or a person who has guaranteed the obligations of the tenant”.
This amendment would clarify that the definition of “debt claims” includes claims against guarantors.
That schedule 2 be the Second schedule to the Bill.
Paul Scully
The clause and schedule 2 cover a temporary moratorium on enforcement measures.
The difficulties of paying commercial rent during the pandemic are best addressed through negotiation. The Bill provides a system to resolve protected rent debt when negotiation has not worked. It has been designed to consider both parties’ circumstances in the exceptional context of the pandemic. If the landlords could pursue other enforcement methods in respect of the respected rent, parties would lose the opportunity to resolve the debt by mutual arbitration applied by the Bill’s arbitration system. That is why the clause introduces a temporary moratorium on enforcement measures detailed in schedule 2.
During the moratorium period, landlords may not make a debt claim, exercise the right to forfeiture or use the commercial rent arrears recovery—CRAR—power to seize goods in respect of unpaid protected rent debt. They may not recover protected rent debt from the tenancy deposit while the temporary moratorium is in place. If they have done so beforehand, the tenant cannot be required to top up the deposit in that period. If the tenant makes a rent payment without specifying the period it covers, the payment must be treated as relating to unprotected rents before protected rents.
Schedule 2 also enables the arbitrator to consider protected rents under a debt claim issued between the Bill’s introduction and its coming into force, or a judgment on such a claim. It also treats rent payments made after the end of the protected period, when closure or other relevant restrictions are lifted, as for unprotected rents before protected rents.
I emphasise that the Bill’s moratorium and other remedies are temporary. We want the market to return to normal swiftly. Under the clause, the temporary moratorium applies only until arbitration is concluded or, if neither party applies for arbitration, until the application period closes. The temporary moratorium also only prevents access to remedies in relation to protected rent debt. If the tenant in scope of the Bill has failed to pay rent attributable to a period before 21 March 2020 or after the protected period ended, the landlord can take action in respect of that debt. Clause 23 and schedule 2, which the clause introduces, are important to give viable businesses an opportunity to resolve protected rent debt by mutual agreement through the Bill’s scheme.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I will speak to clause 23 and schedule 2, as well as amendment 8, which I tabled with my hon. Friend the Member for Feltham and Heston.
The clause prevents rent debts from being collected during the moratorium period, which begins on the day the Act is passed. As we have said previously, we welcome efforts to put a moratorium on the enforcement of protected rent debts, and the clause outlines a number of protections to stop landlords collecting rent arrears debts, including by preventing the making of a debt claim using commercial rent arrears recovery powers or using a tenant’s deposit. The measures have been broadly welcomed by businesses and we support them.
The provisions on the moratorium period cover the period
“beginning with the day on which this Act is passed”.
Last week, Kate Nicholls of UK Hospitality told the Committee that as soon as the Bill is enacted, communications should go out to ensure that commercial tenants are aware of the arbitration process. That point holds for small businesses and independent businesses. I very much hope that the Government will take steps to ensure that the Bill and the protections in it come into force as soon as possible and, equally, that tenants as well as landlords are aware of the protections.
Schedule 2 sets out in more detail the process by which landlords are prevented from making a debt claim and ensures that landlords are unable to take civil proceedings during the moratorium period. We support those provisions, although we know from the feedback we heard during the witness sessions last week the importance of ensuring that tenants are aware of the moratorium period and of the ability to enter into arbitration. Businesses absolutely need to be made aware of the measures.
The schedule outlines in further detail the various definitions used in the Bill, reaffirms that landlords are not able to make a debt claim against protected debts during the protected period, and outlines how parties can apply for debt claims to be stayed while arbitration goes on.
I want to outline the important issues that we raised about the arbitration process. The process should be fair and transparent, and it needs to have the widespread confidence and support of tenants and landlords. As the witnesses in last week’s evidence sessions said, it is crucial that smaller tenants and landlords should not be made to suffer as the result of an expensive or long-running arbitration process in which they are at risk of being muscled out by the greater power of larger organisations. We welcome the arbitration process and the relief that it will bring, but the process itself needs to be fair, and it needs to ensure a balanced playing field.
Schedule 2 also outlines the fact that a landlord may not use the commercial rent arrears recovery power for protected debt, which we welcome. It also seeks to ensure that a landlord is prevented from enforcing a right to forfeit the tenancy in relation to the non-payment of rent. Subsection 9 prevents a landlord from using a tenant’s deposit. We welcome that provision as part of the wider package of protecting tenants and ensuring that landlords cannot seek to get around the spirit of the arbitration process and the protections around arrears.
Amendment 8 seeks to clarify that the definition of debt claims includes claims against guarantors. It aims to provide extra clarity about whether the protections given against county court action are also provided to the guarantors of tenancies. We have received written testimony from experts in the arbitration field and from the head lessee of the Subway chain, who express concern that guarantors and former tenants were not included in the implications of the legislation. I am sure that the Government want to see, just as we do, that the protection against rent arrears action is spread across all the businesses impacted by covid, as well as those that have given the additional support that new and small businesses so often need, such as their guarantors. Of course, many small businesses are franchisees of chains such as Subway, and its head lessee’s evidence must count for a lot of organisations where there is a head lessee and a franchise system.
We do not want to see a back door created whereby tenants are protected from enforcement but the guarantors are still liable. We also heard evidence from the guarantor of a nightclub in Surrey. We have two issues here: the guarantors and the head lessee. It is crucial that the Government ensure that the guarantors of tenants are also protected against debt claims during the prescribed six-month period. We do not want to see the common-sense measures circumvented if landlords are able to go after guarantors with no limit. As I say, the amendment is specifically about guarantors, but we also have concerns on behalf of head lessees.
Paul Scully
I thank the hon. Member for her comments. Indeed, I agree with her. She said that she wants the Bill to be passed as soon as possible, so I am speaking as quickly as I can to make sure that we can get that done.
On the communications, we have already given plenty of notice. The original announcement was in June. The policy statement and the code of practice were published. We have hosted webinars with key stakeholders, and we will continue to engage with them. The hon. Member is absolutely right. We want to make sure that this measure is known by all so that they can take advantage of it. If they are unable to settle their rent debts between themselves, we can bring this to a head quickly through arbitration and get back to a normal free market as soon as possible.
On the amendment, I can reassure the hon. Member that we will take full note of written evidence that comes in, but paragraph 2 of schedule 2 already prevents claims against guarantors. It prevents the landlord from making any debt claim in respect of protected rent within the moratorium period specified by the Bill. The provision in question is not limited to claims against tenants, so it does not need to state expressly that it covers claims against guarantors.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 24
Temporary restriction on initiating certain insolvency arrangements
Question proposed, That the clause stand part of the Bill.
Paul Scully
Both parties are expected to engage with the arbitration process and must comply with any award made. They may choose to settle the matter by negotiation ahead of arbitration, but other processes that enable the arbitration system to be avoided should not be available. That is why clause 24 prevents a party from proposing or applying for a company or individual voluntary arrangements or certain other restructuring arrangements with their creditors.
Ruth Cadbury
Just as we welcome the actions in clause 23, we welcome clause 24 placing restrictions on the ability of either a landlord or a tenant to enter into specific insolvency arrangements when the matter relates to protected rent debt. That is a welcome move, as we do not want to see viable companies going into insolvency because of rent arrears.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Temporary restriction on initiating arbitration proceedings
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause prevents either party from invoking alternative measures that have not been designed specifically for debts related to the pandemic.
Ruth Cadbury
We heard in testimony last week that the vast majority of landlords and tenants have been able to reach agreements on rent arrears, and it has generally been a productive and straightforward process. The clause ensures that the tenant or landlord cannot unilaterally start arbitration proceedings and must go through the referral process, requiring the other party also to make submissions in writing. I am interested to hear what steps are in place for businesses, and especially small businesses, when a larger landlord or tenant refuses to enter arbitration fairly.
Paul Scully
If both parties wish to resolve their unpaid protected rent debt by an alternative form of arbitration, they may agree to do so. In terms of the arbitration itself, the businesses—either the landlord or tenant—can act unilaterally.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Temporary restriction on winding-up petitions and petitions for bankruptcy orders
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 3 be the Third schedule to the Bill.
Paul Scully
Clause 26 and schedule 3 temporarily prevent landlords from petitioning, in relation to protected rent debt, to wind up businesses in scope of the Bill or petitioning for bankruptcy for businesses that are individuals, such as sole traders, that would otherwise be viable. The clause and the schedule support viable businesses by allowing debts to be resolved by mutual agreement or by the Bill’s arbitration system, which considers both parties’ circumstances in the exceptional context of the pandemic. As with the other temporary restrictions in part 3, the restrictions detailed in clause 26 and schedule 3 apply only in relation to protected rent debt.
Ruth Cadbury
We welcome the measure in clause 26 as it will prevent landlords from going through a back-door method of targeting businesses unfairly. We also support schedule 3 as it will ensure that viable businesses are protected and can enter into the much-needed arbitration process. Paragraph 3 of schedule 3 ensures that bankruptcy orders in relation to rent arrears made before the day on which the Bill becomes law shall have no power. This will prevent businesses that will be helped by the legislation from being declared bankrupt, which we support as it will protect otherwise viable businesses.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 27
Power to apply Act in relation to future periods of coronavirus control
Question proposed, That the clause stand part of the Bill.
Paul Scully
The measures in the Bill are a response to the unprecedented impacts of the pandemic and will support commercial tenants and landlords to resolve their rent debt. To ensure that we are prepared for a future situation of a further wave of coronavirus giving rise to further business closures, we are including a power to reapply the provisions in the Bill. This will enable the Government to reapply any and all provisions in the Bill so that we can take a targeted approach to respond to the specific circumstances of any future period of coronavirus.
Ruth Cadbury
Given the past few days and the news of business revenues plummeting, we of course welcome the clause. We know that many businesses are already feeling the pinch, as we have seen in the news. There is already worry and concern in the sector about staff shortages and rising supply costs, and on top of that businesses are concerned about customer numbers. The Government appear to rule out any return of covid-related support for businesses, but at least the clause offers some relief in respect of rent arrears. Although we welcome the inclusion of a power to ensure that businesses do not get punished for rent arrears in the future if they are forced to close, I take this chance to remind the Government that businesses are feeling the pinch, even if they have got over the outstanding revenue losses from the previous almost two years. We know that customers are cautious in the face of the new variant, and that businesses will be impacted, so we support the clause.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28
Power to make corresponding provision in Northern Ireland
Question proposed, That the clause stand part of the Bill.
Paul Scully
The Bill will not apply directly to Northern Ireland. Instead, this enabling power was requested by the Northern Ireland Executive. It is intended to allow them to introduce the measures in the Bill at their discretion. The arbitration scheme remains an option for Northern Ireland while they assess their need for those measures. We will of course continue to work closely with our counterparts in the Northern Ireland Executive.
Ruth Cadbury
We welcome clause 28, but our comments and concerns about businesses in England and Wales apply just as much to those in Northern Ireland.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill.
Clause 29
Crown application
Question proposed, That the clause stand part of the Bill.
Paul Scully
The Bill will bind the Crown where the Crown is a landlord under the business tenancies in scope of the Bill. I commend clause 29 to the Committee.
Ruth Cadbury
Clause 29 is a straightforward clause, setting out that the Bill binds the Crown. We have nothing further to add.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Clause 30
Extent, commencement and short title
Question proposed, That the clause stand part of the Bill.
Paul Scully
This clause sets out the territorial extent of the Bill, which has been carefully considered, and the continued engagement of the devolved Administrations. It reflects the differing needs of each part of the UK and ensures that the tenants and landlords that will most benefit from this measure can access it. It extends to England and Wales, with limited provisions extending to Northern Ireland and Scotland.
Ruth Cadbury
We have nothing further to add on clause 30, Mr Hosie. However, this is the last time that we will speak in this Committee, so I will take the opportunity to thank all those who have provided expert submissions to the Committee, who have spoken in the last week and who have sent written submissions. I thank Members for their attendance, and I thank the staff who have administered the Bill so smoothly and enabled us to finish so quickly.
I conclude with an overarching point. Some of the submissions that we have received, particularly this week, from expert bodies with significant legal and other professional expertise in the area of landlord and tenant law, arbitration and settlements still express significant concerns about the detail of the way the Bill is drafted. I hope that between now and Report and Third Reading, the Government will look at their comments, meet them and address some of the detailed and expert points that they raise. I fear that they probably know what they are talking about.
Paul Scully
I echo the hon. Lady’s thanks to you, Mr Hosie, to the Clerks and to everybody for making this happen. We want to ensure that we get the Bill into legislation as quickly as possible, but that does not mean that we will rush it and not have further consideration. Beyond the passage of the legislation through Parliament, we will continue to engage with stakeholders, including arbitration services, landlords and tenants, to ensure that we get it right. It is so important that we get this enacted now, so that landlords and tenants can get the benefits when they need them—now, not when it is too late.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Bill to be reported, without amendment.
Commercial Rent (Coronavirus) Bill
Thursday 13th January 2022
(2 years, 10 months ago)
Lords ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 12 January 2022 - (12 Jan 2022)
Commercial Rent (Coronavirus) Bill
Thursday 27th January 2022
(2 years, 10 months ago)
Grand CommitteeRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 12 January 2022 - (12 Jan 2022)
Lord Grimstone of Boscobel
That the Grand Committee do consider the Commercial Rent (Coronavirus) Bill before Second Reading.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, it is an honour to open this debate on an important piece of legislation. The primary purpose of this Bill is to support commercial tenants and landlords in resolving outstanding rent debt accrued during the Covid-19 pandemic.
As noble Lords know, the pandemic has brought forward unprecedented challenges. Many difficult decisions have been made in the interest of protecting public health, including the mandated closure of businesses. These closures have had immense impacts across the economy. Sectors such as hospitality, leisure and non-essential retail have been subject to significant restrictions and closures. Certain businesses, particularly in the night-time economy, were mandated to close for over 15 consecutive months.
Minimising the economic damage caused by the pandemic has been a key aim for this Government. To that end, the Government put in place an economic package of support which provided businesses and individuals with certainty. Since the start of the pandemic, the cumulative cost to the Government has been £400 billion. Measures introduced include loan schemes, grant funding, tax deferrals and the Coronavirus Job Retention Scheme, all of which were designed to be accessible to businesses in most sectors and across the UK.
The Government also introduced several temporary measures that have helped commercial tenants. These measures have prevented the eviction of commercial tenants based on unpaid rent, restricted landlords’ ability to seize goods to recover rent owed, and restricted landlords and other creditors from instigating certain insolvency proceedings. These protections have been in place since March 2020 and have been extended to late March 2022 in order to allow time for Parliament to consider the legislation before us. While the protections have succeeded in their aim of minimising insolvencies and job losses, they have also led to commercial tenants building up a significant amount of unpaid rent debt. An estimated £6.97 billion in rent was deferred over the course of the pandemic.
The Government have therefore worked alongside tenants and landlords to develop a code of practice for the commercial property sector. That code was published in June 2020 to support rental negotiations amidst these temporary measures. Of course, it has always been the Government’s preference that landlords and tenants negotiate and come to agreements on rent independently and openly. An updated version of the code was published alongside the Bill’s introduction to the other place, and it has been really encouraging to see that many landlords and tenants have used the code to reach settlements.
As was heard in the oral evidence sessions in the other place, the anticipation of this Bill coming into force has encouraged even more landlords and tenants to come to an agreement. However, there are still tenants and landlords who have been unable to reach agreement. It is estimated that by March 2022 there will still be more than £1.5 billion in deferred rent that will not have been agreed on. As such, multiple businesses and jobs continue to face the threat of insolvency as a result of this rent debt. Without this Bill in place, the measures protecting tenants will expire before the end of March, leaving commercial tenants in the sectors covered by the legislation vulnerable to evictions and insolvency proceedings.
Importantly, the Bill is not one-sided. Landlords, too, have also incurred significant financial losses as a result of the pandemic. We are aware of several high-profile tenants who have refused to pay rent despite being able to do so, and many landlords have been unable to recover rent from—let us describe them as “reticent”—tenants. Through this Bill, the Government seek to support commercial tenants who were required to close, and their landlords. This will ultimately allow the commercial property sector to transition away from these temporary measures and return to normal market conditions.
I shall give a quick overview of the Bill. It introduces a system of binding arbitration that will act as a backstop for certain tenants and landlords who have been unable to come to an agreement on outstanding rent debt. We initially estimated that around 50,000 firms would be eligible for the arbitration scheme; this number excludes parties that have already reached agreement. However, it is very positive that it is now estimated that of those 50,000 firms, only around 7,500 cases are left that will go through the arbitration scheme. We will continue to encourage parties to negotiate in the first instance wherever possible. I should stress that it is important to note that these figures are only estimations, as outlined in the impact assessment that was published alongside the introduction of the Bill.
The introductory provisions of the Bill are set out in Clauses 1 to 6. These include the definition of rent debt, the businesses that are in scope for arbitration and the specific period in respect of which rent debt is protected. The decision to apply the Bill to businesses that were mandated to close ensures that this support is targeted to those that require it most. These businesses are among those hardest hit by the pandemic. Although they have been able to resume trading without restrictions, many of them have historically low profit margins and minimal cash reserves.
To show the extent of the problem, during the first period of restrictions, the average rent collection dropped to around 38% at the due date, and 51% at seven days past the due date. The lowest collection rates were seen in leisure and retail, which had rates of 26% and 46% respectively at seven days past the due date. By quarter 4 of 2021, these rates had risen. Rent collection had improved to 61% for the leisure sector, up from 26%, and 70% for retail, up from 46%, at seven days past the due date. I am reassured that businesses are showing signs of recovery. However, expecting businesses to be able to pay rent debt accumulated over the pandemic in a one-off payment would in many cases be unreasonable.
The “protected period” for rent debt will differ depending on the business and will end on the date the business last faced closure or restrictions on how to operate. This period, at its lengthiest, runs from 21 March 2020 until 18 July 2021 in England and until 7 August 2021 in Wales.
The bulk of the provisions in this Bill set out the parameters of the binding arbitration scheme. To ensure that the scheme gives rise to speedy resolutions, tenants and landlords will have a period of six months to refer a case to arbitration, beginning when the Bill comes into force. Alongside a referral to arbitration, the applicant will be required to put forward a proposal for resolving the matter of relief from payment of protected rent debt.
The Secretary of State will approve the arbitration bodies that he considers suitable and capable of delivering the scheme. These arbitration bodies will then maintain a list of suitable arbitrators that are available to act and appoint arbitrators to each case. Arbitrators will review the proposals and any supporting evidence to determine whether the dispute is eligible for arbitration under the scheme and, if so, whether any relief from payment of the debt is appropriate. This relief may take the form of a reduction to the total debt, cancellation of the debt, or an extension to the repayment period of the debt. The arbitrator will consider financial records and any other evidence considered appropriate to assess the viability of a business or the solvency of a landlord. The arbitrator will make an award and, if granting relief from payment of a protected rent debt is appropriate, the award will set out the terms of that relief. These awards will then be published, which will help set market expectations and aid negotiations outside of the arbitration scheme. So the scheme will be transparent in its operation.
The arbitrator will base their award on a set of clear and proportionate principles, which we have considered carefully. These principles are set out in Clause 15 and make it clear that preserving viable businesses is a key aim of the scheme, but that the preservation of a tenant’s business should not come at the expense of a landlord’s solvency. The principles provide that any relief given should be no greater than necessary and that any tenant who is able to pay should do so. The arbitrator must follow these principles when making their award. Only viable businesses, or those that would become viable with an award of relief from payment, will be eligible for arbitration. For example, a business could be granted an award that reduced the amount of debt owed if that reduction would allow it to become viable again.
In this way, we are actively supporting businesses that will continue to prosper and grow, will provide jobs, and will support the UK to build back better. As your Lordships will have expected, we have engaged with arbitration bodies to develop this approach, and I am confident that it will deliver swift resolution for tenants and landlords locked in disputes.
As I mentioned earlier, only rent debt attributable to a specific period will be eligible for arbitration. This rent debt will continue to be protected for the six-month application period and then up until the end of the arbitration proceedings.
The protections afforded to this rent debt are contained in Clauses 23 to 26. These include a targeted continuation of existing restrictions, such as the moratorium on the eviction of commercial tenants, the restriction on landlords’ ability to seize goods in lieu of unpaid rent and restrictions on issuing winding-up petitions against commercial tenants. This ensures that parties who cannot come to an agreement will have a genuine opportunity to apply to arbitration before landlords will once again be able to resort to other legal remedies. I am confident that this six-month period is enough time to allow tenants and landlords to apply to the scheme. However, if there is evidence that this period is not long enough, the Bill allows for the application period to be extended.
The Government have engaged extensively with tenants, landlords and arbitration bodies throughout the development of this Bill. The policy contained in it has been rigorously tested with key stakeholders. A call for evidence was launched in April 2021, which gathered the views of tenants and landlords on the temporary measures, the state of rent negotiations and the preferred exit options for the temporary measures. The feedback from that call for evidence made it clear that the voluntary nature of the code of practice was hindering negotiations and that a statutory solution was required. Nearly half of respondents—49.2%, to be precise—were in favour of binding adjudication, and only 27.4% were against this proposal.
Since the call for evidence concluded, we have continued to work closely with tenant and landlord representatives, as well as arbitration bodies, to help shape this legislation and support negotiations. My colleague the Minister for Small Business, Consumers and Labour Markets, Paul Scully, has met regularly with tenant and landlord representatives to discuss these proposals and the issue of rent debt in the affected sectors. I am grateful to the bodies representing commercial tenants, landlords and arbitrators which have taken the time to provide feedback. They have recognised the efforts that the Government are making to encourage continued negotiations and the value of establishing a system in the event that negotiations fail.
I held a drop-in session yesterday, and thank the noble Lords, Lord Hunt of Wirral and Lord Shipley, and the noble Earl, Lord Lytton, for their time and interest. I look forward to working again with the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, with whom I worked on the Professional Qualifications Bill. I hope to be pleased to hear of their support for this Bill and warmly welcome their constructive scrutiny as we discuss it in more depth.
To conclude, the Bill brings forward a solution that should be used only when parties are unable to reach agreement between themselves. The Government’s position continues to be that tenants and landlords should negotiate where possible. The protections put in place by the Government during the pandemic have offered much-needed respite for businesses fearing insolvency. However, these measures must come to an end. This Bill will facilitate an exit from these temporary protections and support the resolution of unpaid rent debt that is preventing commercial tenants and landlords from recovering. I beg to move.
Lord Shipley (LD)
My Lords, I first remind the Committee that I am a vice-president of the Local Government Association—I do so because local authorities can have a substantial role as commercial landlords. I thank the Minister for his comprehensive introduction to the Bill and for his meeting yesterday with Peers who have an interest in the Bill to discuss its details. I like the opportunity afforded by this new system for debate; it is a most welcome change.
I welcome the Bill itself because it addresses the need to minimise bankruptcies of tenants and landlords. Many businesses have been kept afloat by reductions in their costs while closed during the pandemic, which have been important contributions by the Government to supporting those businesses. Many are viable businesses that simply need time to recover. However, as temporary protections for tenants are reduced, it is vital that the recovery of those businesses is not put in jeopardy by the actions of landlords. That said, landlords have not received £1 in every £6 that they should have over the last two years.
The Bill seems to balance the needs of landlords and tenants fairly. Binding arbitration clearly has very substantial support and seems the best way to proceed for businesses forced to close. A balance has been struck between the needs of landlords and the needs of tenants which should significantly reduce closures which are not in the interest of consumers or landlords. I am thinking here of the importance of the Bill to the retail sector and the high street, which needs all the support it can get. Empty shops just make the physical retail offer less attractive and will lead to even greater dependency on internet shopping.
I move to some specific questions on clauses that the Minister may be able to respond to today—if not, later in writing, if that helps. In Clause 2 there is mention of interest rates payable. My question relates to the levels of interest payable on unpaid rents and what controls the Government are planning, if any, on excessive rent charges. How are those to be prevented?
In Clause 9, there is a requirement to refer a dispute for arbitration within six months of the Bill passing—the Minister referred to this figure. Longer than six months may prove necessary, but I accept that the Government have built in a means of addressing that problem should it arise. In that context, does the Minister feel that there are enough arbitrators to meet the demand that is likely to be forthcoming? It is estimated that 7,500 businesses could need arbitration because there has been no resolution of the stand-off between the landlord and tenant directly. That is a large number; therefore, there is a question of capacity within the system as a whole.
On Clause 13, is the Minister satisfied that there are enough protections in place to ensure that an error is not made by an arbitrator on the viability of a business? I refer to alleged errors of judgment by arbitrators and whether they can be challenged by a tenant or whether they simply cannot be challenged at all, even with recourse to the law. I can foresee articles being printed in the press complaining about the actions of arbitrators where they are deemed to have made an unfair decision about the viability of a business. I recognise that these are difficult and sometimes complex issues, and there are issues of commercial confidentiality as well. Nevertheless, I would welcome the Minister’s assurance that in the defining of viability by an arbitrator, the rights of the tenant are protected.
Clause 14 requires rent debt to be paid within 24 months of a decision. I am not sure that that is long enough. It may be in most cases, but it may not be enough for a business which is viable but on the margins and which would benefit from a longer time period. How fixed is that 24 months in Clause 14?
I say in passing that I welcome Clause 27, which will enable the Secretary of State to apply the provisions of the Bill to business tenants forced to close by future coronavirus restrictions. It is wise that the Government are proposing to use the affirmative procedure. Clause 27 is very important.
I have two further issues, as I draw to a close. The first relates to case law, because there is going to be a great deal of new case law. The Minister referred to transparency in the operation of the Bill, and I welcome that intention. I am not quite clear how, with all the new case law that is established by all the binding arbitration, there will be a system in place to ensure that binding decision-making reflects that body of case law. Is it the Government’s assumption that there will not be any new case law? With 7,500 cases all being heard over a comparatively short period, how are we going to ensure that a decision made in one place by an arbitrator is actually similar to a decision made somewhere else by a different arbitrator?
These are imperfect systems—I fully understand that —but nevertheless I am not quite clear on the extent to which decisions and the reasons for them can be shared publicly for other arbitrators or the general public as a whole to see. I recognise that there are issues around commercial confidentiality, but are the Government satisfied that enough is going to be published about the reasons for decision for awards that are being made?
Can I just double-check the issue of fee levels with the Minister? This Bill is about businesses on the brink. Fee levels for binding arbitration will be important for a tenant. I hope that the Government have in place means of ensuring that fee levels will not be excessive.
The Minister has explained the context. The Government have taken a whole set of temporary measures to support businesses over the last two years, which I have welcomed, but the problems that we now face are, first, with the business rates system, worth £25 billion a year to the Treasury. It is expensive, and I read in the press that there is a stand-off between the Department for Levelling Up and the Treasury about whether retail premises on high streets in particular should, for a period at least, pay no business rates.
There is a huge problem then for local government, because income from business rates really matters. We do not have the right level of discussion about some of those big strategic issues, and I am not sure that it is something that can be dealt with by only one political party. That said, there is a business rate context; for many businesses on the brink, business rates really matter, but they are also facing rises in general inflation and rising energy costs. What this Bill does can actually help mitigate some of the cost pressures that viable businesses currently face.
I welcome this Bill, which is a huge step forward. The Government have protected themselves by enabling themselves, through the negative or affirmative procedure, to make changes to it—but I welcome it, and I commend what the Government are attempting to do.
The Earl of Lytton (CB)
My Lords, I, too, welcome the opportunity to debate this Bill—I apologise, I may be standing too close to the microphone; it is my stentorian tones. In making my initial comments, I refer to my interests as a practising chartered surveyor and my association with the Chartered Institute of Arbitrators, although I do not practise as an arbitrator—and last but not least as a private landlord of let commercial property, although I do not have any rental or arrears issues. However, I do have a working knowledge of commercial landlord and tenant matters.
I thank the Minister for holding the briefing session yesterday and for his introduction today, and I acknowledge straightaway that the Government have made a necessary move to deal with an extreme set of circumstances surrounding suspension of business during parts of the pandemic and the accrual of rent arrears, as we have heard. So I agree that this is essential. After all, keeping tenancies going, as opposed to having occupational voids, is straightforward economic common sense. Like all such pieces of legislation, it is a typically blunt instrument of last resort, but I note that the threat it poses already seems to have concentrated some minds, and the estimate of some 7,500 cases is certainly less than I feared was the case.
Although I note that arbitration was the majority method of determination in response to the call for evidence, it certainly is not free from issues of its own and is not necessarily cheap, quick or, if appealed under the limited grounds under the arbitration Act, final. Good adjudication comes at a cost, and my sense is that the department may be underestimating this. The Chartered Institute of Arbitrators tells me that it has a budget package for written representation-only cases involving claims of between £5,000 and £100,000 and exclusive of the parties’ own costs. That is priced at £3,000 per case, split between the parties, and turned round in circa 89 days. But actual costs may vary substantially because of the actions of the parties themselves, and can easily be escalated. I must say that the proposed timeline in the Bill is, to my mind, tight.
In the absence of a contractual agreement to refer—and, potentially, of any party agreement of any sort—running up to arbitration under the Bill, I would suggest that some default terms of reference will be required and that minimum standards of information from the parties be specified. I am not sure that the Bill actually achieves this.
I have already raised with the Minister what I see as an asymmetrical approach based on tenant viability on the one hand and landlord insolvency on the other. These are not the same and, in my opinion, it would be difficult for an arbitrator to compare those on a truly like-for-like basis. From the various documents it is hard to identify, for instance, just exactly what critical change to a landlord’s circumstances as between, say, extended borrowing or actual insolvency, is intended to form the relevant line in the sand for the purposes of the Bill, so I hope that that can be clarified. One cannot necessarily assume that either landlords or tenants will be in the stronger position, so this needs a fair balance, bearing in mind that many landlords may be private individuals with one or two pension pot properties, just as tenants may be sole traders.
I am concerned, as is the noble Lord, Lord Shipley, about the principle of viability as it applies to tenant businesses and how that can be assessed in practice. I believe a number of eminent bodies also have concerns about this. The revised code is singularly uninformative and the Bill a fairly minimal checklist. In early years, a business may be technically unviable or depend on personal good will until it has sufficient trading under its belt to be objectively seen as solvent. That is a normal risk. The arbitrator, at a cost to somebody or other, would have to make an initial decision on viability before proceeding to the issue of rental liability and what should actually be paid. I would be concerned if this Bill were itself to create perverse incentives, and I ask the Minister what safeguards will exist to ensure objective viability tests and monitor fair balance in outcomes.
The noble Lord, Lord Shipley, in a magisterial presentation, referred to the question of arbitral precedent, and I agree with him. The circumstances here are rather specific: it is not very normal to be looking into a tenant’s viability. I am aware that there is some experience of dealing with things like turnover rents but again, that is a rather different algorithm.
Any perceived imbalance may reinforce trends. I take the point the Minister made about returning, hopefully, to normal business, but I am not sure that there is such a thing. Landlord and tenant businesses can in future expect much greater scrutiny of management culture, lettings policy, trading viability and financial status now that their risk profiles and proclivities will be more apparent. Consequential investor, lessor and lessee nervousness may well be the result, especially if, as noted by British Property Federation, this sets a precedent for future “step-in” powers. As the BPF also observes, this is not just some limited category of landlord and tenant who may suffer varying degrees of loss, both financial and of confidence, as a result of emergency measures; it is pension funds, local authorities —referred to by the noble Lord, Lord Shipley —individual investors and entrepreneurs, charities, the vitality of high streets, consumer choice and convenience: in other words, all of us.
The noble Lord, Lord Shipley, referred to the bigger picture, and I relate to what he said. Looking at these things in an overarching policy balance is extremely important.
To a slightly more specific point, one question raised with me is whether rent arrears agreements already reached voluntarily, whether under threat of these sanctions or not, could be reopened and made subject to the Bill’s arbitration provisions. My working assumption is not, but the applicable degree of finality in that respect needs to be spelled out unless 7,500 is going to become some rather larger figure.
Like the noble Lord, Lord Shipley, I am not reassured about arbitral capacity in the property sector. It is not just a matter of signing up new arbitrators or rolling out existing ones but of how many have adequate experience in the commercial landlord and tenant sector. I am not sure that experience of
“business finances and commercial negotiations”
referred to in the code represents the complete skill set needed, so I would appreciate further and better information on this because the objectives of the Bill depend on the window of opportunity of six months and delivery in fairly short order.
The Royal Institution of Chartered Surveyors—RICS—believes this Bill inadvertently may make arbitrator appointing bodies responsible for the oversight of arbitrators, their conduct and their fitness. If correct, I sense that that might run counter to the provisions in the Arbitration Act 1996 relating to arbitrator autonomy and powers. More particularly, it could also create liabilities for the appointing body, increase costs and slow the process, always assuming the bodies are willing or legally able to take responsibility.
RICS also raises the pertinent point that arbitrators should be required to be free of conflicts of interest. I was once accused of bias because “Everyone knows that chartered surveyors always act for landlords.” I suppose in part, because I have in the past acted for both landlords and tenants, I am guilty as charged, but that points out that it is as much the perception of bias and resultant confidence in arbitrator impartiality that matter as opposed to actual conflicts of interest. Furthermore, most cases of appointments by appointing bodies rely on arbitrator self-disclosure of any conflict of interest, so I think the point is valid.
Nearly finally, although I appreciate that this ship may have sailed, I particularly dislike the conflation of rack rent and service charges as rent for the purposes of arbitration under the Bill. I do not believe that that merging proposal was made clear from the outset. It is one thing to be deprived of the rent but another thing altogether to be liable for the services related to use and occupation that are an on-cost payable to a third party and with no possibility of relief. The Government should reconsider that because different considerations apply within the stated global definition of rent.
That said, I appreciate the need for the Bill to complete its passage speedily but hope that I may have some answers to these points.
Lord Fox (LD)
My Lords, I do not think I have spoken in a debate before Second Reading in the Moses Room before and I do not think I have spoken when the department staff almost outnumber the speakers, which probably points out why we are in the Moses Room.
Many of the issues I am going to cover have already been covered by previous speakers. I am quite relieved about that. Given the vast experience in local government of one speaker and the experience in the property market of the other speaker, I am rather glad that I am covering some of the same ground, because we appear to be in the right place.
Covid has shocked the commercial lives of our villages, towns and cities across the country. As we have heard, the Bill is designed to help deal with one of the big aftershocks, rent debt. The Minister said earlier that there is £6 billion of rent debt. To put this into context, all town centres and high streets have been hit, but businesses with physical premises—bricks and mortar—tend to have suffered the most. For example, some shops have lost close to one year’s trading in value terms over the course of the Covid pandemic.
I am sure the Government will say that help has been on hand on during this process, which it was, but, meanwhile, as we have heard, rent has been accruing, Covid loans will soon need to be repaid and there is much catching-up to be done. It should be noted that the Covid shock has come on top of other difficulties that already make trading hard. The noble Earl, Lord Lytton, alluded to some, as did my noble friend. They include supply chain issues, difficulties hiring and retaining employees, wage inflation and energy costs. So this Bill is welcome, and the Minister will be pleased to know that we will be more in lock-step than we were during the previous Bill on which we worked together.
The Bill is important not least because a lot is staked on the way businesses develop going forward. Communities will be deprived of their focal points and their services if we get this wrong. Local jobs will go, and a deprivation spiral will sink further. The Minister set out the number of businesses that are currently in arrears—some 60%—which is falling, but what is the geographical breakdown? While “only” 40% of leisure businesses are still in arrears, are they focused in particular communities? My suspicion is that they are, so the concentration of damage will be higher in some areas than in others. Frankly, they will be the areas that have already experienced more problems. This is really important, and it is coming at a time when we are all being urged by the Government to reopen our economy.
As set out, there is a balance to be established between the needs of tenants and those of landlords. As has been said, it is in nobody’s interest for great holes to open up across real estate. It is right that we should remember that not all landlords are large corporates. They are private individuals or small firms and, as my noble friend Lord Shipley pointed out, in many cases they are local authorities, which are quite big players in some communities. When the Minister kindly met me, he spoke about consultation. I should have asked whether local authorities have been explicitly consulted on this issue. I would appreciate an answer to that.
When it comes to striking a balance, we support binding arbitration as a way forward. Therefore, the role of the arbitrator will be crucial, and we heard comments along those lines. The Minister told us that he has consulted bodies which will serve up the necessary arbitrators and said that they are satisfied with the way this Bill is going. Although the Minister reported that they are confident that this process will be doable—I do not know whether it is straightforward—I echo some of the comments made on the complications. Not only will there need to be an assessment of what has been lost, which should be a relatively straightforward calculation, but there needs to be a reasonable sense of business prospects. This is a much harder call. That is not only because of the hardening business environment that I have just described but because consumer and work habits have changed. We do not know to what extent these changes are permanent and how they will develop, but we do know that those changes will influence the trading prospects of many of the businesses that will come up for discussion. The definition of “viable business” will by no means be clear-cut in a lot of cases. That has already been pointed out. My noble friend asked about challenging a ruling on the viability of a business, which I think will be an issue that rears its head. How will the department support arbitrators in the definition of “viable business”?
The next point is around the source and supply of arbitrators, which both noble Lords spoke to. It is not clear yet how many arbitrators the Minister believes are necessary, assuming the 7,500 figure is a reasonable estimate. Has that number been matched with the available people? Furthermore, what is the plan for quality control and training of these people? This comes to the point made by the previous speaker. This is a different situation and role. It is a national role, and we want to see equivalent quality across the country.
Does the department have some outreach plan to make sure that the arbitrators are working from the same statistics, for example, inflation estimates? If one arbitrator is using inflation estimates of one level and another is using a different one, their outcomes will necessarily be different. How will they be kept in line? That is just one area.
The Minister outlined that, using the code, we hope there will be a diminishing need for arbitration. In a sense, as he set out, the main purpose of this Bill is to put something in place that will not be used too often. He called it a “backstop”, a term which I was going to suggest, so we are in line on that one. Its presence will hopefully act as an incentive, as we have heard, to drive prior agreement before arbitration is called on. The access process for triggering arbitration is not completely clear to me. I might have missed it in some of the guidelines, but it would be helpful if the Minister could outline how, if I am a landlord or a suffering tenant, that process is triggered.
Like the noble Earl, Lord Lytton, I have concerns about asymmetry. We discussed this when we met. When you have a big landlord and a small tenant, there is a clear opportunity for a mismatch. The Minister was clear when we met that the low cost of entry should prevent this being an issue, but can he explain how other costs will be controlled? How will the ancillary costs of preparing one’s case be limited? It is quite clear that a corporation with a large chequebook has much more firepower in preparing its case for the arbitrator than a small sole trader. Of course, sometimes the mismatch is in the opposite direction. It is not just the cost of entry but the cost of preparing one’s defence or offence in the arbitration process.
Assuming that the Government are successful in maintaining this low-cost, symmetrical situation, how will they communicate the availability of this process to landlords and tenants across the country? What is the communication plan sitting underneath all this?
I do not expect subsequent stages to be long, but I will set out a few questions it would be helpful to answer. What consultation has there been with local authorities? Are sufficient arbitrators available? What modelling has been done and what training and quality control process is sitting under this? Can the Minister remind your Lordships what constitutes an arbitrator? In our meeting he mentioned country solicitors. On reflection afterwards, a reg flag went up, given country solicitors I have known. Are changes planned in the arbitration accreditation process to acknowledge the new nature of this role? Will there be ongoing communication with arbitrators—for example, providing them with not just data and results but case studies of how those results arose, as a previous speaker mentioned—or are they effectively on their own, inventing it every time? What is the process for triggering arbitration? How will the Government go about communicating all this to tenants and landlords?
Even if this Bill is successful and the number of bankruptcies is reduced, there is going to be a waterfall of bankruptcies in our towns, cities and villages across the country. As well as this—and I would like the Minister to acknowledge it—there is other work to be done in maintaining local economies, particularly in the most underprivileged and least well-off areas. This Bill will not be sufficient to keep our way of life running in some parts of the country.
I look forward to hearing the noble Baroness, Lady Blake, and the Minister’s response to these speeches.
Baroness Blake of Leeds (Lab)
Following the example of the noble Lord, Lord Shipley, I also declare my interest as a vice-president of the LGA, and I thank him for that reminder.
I am very pleased to be able to contribute to this important legislation today. When I think back to this time last year, I was still the leader of Leeds City Council, and the issues that we are talking about today are so real to me—all those horrific debates and discussions with the Cabinet Office and No. 10 about which tier of restrictions we were going into, knowing what the implications of those decisions, often made with less than 24 hours’ notice, would be for local businesses and communities. Of course, there was the perverse situation that, for some businesses, it was better to go into a higher tier, because they would be mandated to close and therefore would get more protection than businesses that were not covered and had to try to make awful decisions about whether to keep trading or struggle on, and all those things.
So I come to this with a very raw, first-hand experience of understanding what businesses and landlords have been through, and the decisions that they have had to take over the past two years. Of course, we are talking about the trauma of financial loss and potential bankruptcy, but we should not underestimate the real personal cost that this has put on individuals responsible not only for their own families but for those of their employees in the decisions that they have made.
I, too, echo the concern expressed in this debate about the future role of local authorities, because they have mostly had responsibility for helping businesses and communities through the past two years—and their knowledge of all the issues that we have raised is going to be invaluable in making sure that we can move this forward. Then there is the whole issue of how we can ensure that decisions made through this process actually contribute to the levelling-up agenda. That needs to all be put together in the round.
All of us who have spoken have recognised and acknowledged the need for fairness in the process, and I think that is going to lead to future scrutiny and challenge as the scheme unfolds. I am sure that we all agree that our aim here today and in the ongoing discussions is to ensure that the proposals are effective and accessible—and we have had some discussions about accessibility and sharing information about availability of support. As I have said, most important is how we fairly balance the interests of all relevant parties.
The main principle must be, as we have heard, that no otherwise viable business should face significant burden from rent arrears without a due arbitration and burden-sharing process. Likewise, commercial landlords must have access to clear mechanisms by which to recoup appropriate levels of arrears. Again, the issue that we are facing is around the long-term interests of British businesses, and some of those judgments and decisions around viability are going to be extremely difficult. But of course, all of us are concerned with protecting livelihoods and employment, acknowledging the real difficulties that have been suffered over the past two years.
I emphasise that we have to recognise the context in which we are working. As well as the impacts we have had over the last two years—it is hard to believe we are almost coming up to the second anniversary of the first lockdown—businesses are facing major challenges in the weeks and months ahead. They include the pressures from inflation, the energy crisis and dramatic increases in fuel costs, the proposed hike in national insurance contributions, and the supply chain crises, to name but a few. That is why we on our side are focusing on additional steps to help businesses and bring forward plans to deal with the long-standing problems facing them, particularly around the vexed issue of business rates, and why we have announced a major package of measures to tackle the mess that surrounds the whole business rates agenda. This matters, and these debates will have a profound influence on how high streets, for example—it is not limited to them alone, although they do get repeated mentions—will be able to emerge on the other side of the recovery.
Debate in the other House specifically on the Bill has sought to achieve greater clarity and fleshing out the detail. As we have heard repeatedly today on the basic definition of “viable” in this context, and to echo the comments from the noble Earl, Lord Lytton, how can we ensure that it is clear and appropriate in scope?
We have stressed a great deal the question of whether we are confident about the basis for the arbitration agreements. How can we ensure that constituency of approach and delivery will be guaranteed, and how will any such inconsistencies be dealt with? How can we be sure that the fees charged are consistent and not excessive? A specific question: will there be a cap on fees? I would welcome the Minister’s comments on that. Another question has been raised repeatedly: is there enough capacity in the sector to cope with the demand and—crucially in this context—to prevent further delays?
The date of retrospectively prohibiting court judgments only from 10 November is a case in point that we have to be mindful of. Evidence from the various interested parties outlines the huge ongoing burden that businesses have been facing. The impact assessment from the Treasury notes that the total amount of deferred rent liabilities could be around £9 billion by March. There has been enough delay, and we recognise the urgency of putting the right provisions in place.
We also recognise a welcome move in that many landlords and businesses have been able to reach agreement and have settled their liabilities. I make reference as well to the code of practice from the Department for Levelling Up, Housing and Communities and to how that has contributed. However, the uncertainty with regard to coronavirus restrictions in the run-up to Christmas—whether there would be any and what they would be—had a further devastating impact for many, especially across retail, hospitality, cultural venues and many more. With debts high as a result, further costs around arbitration become even more relevant. With the levels of uncertainty facing businesses and landlords going forward, surely it would be sensible to have a mechanism to keep progress under review. Is this an area where the Minister could also provide answers for us?
I look forward to the Minister’s closing comments and particularly to hearing where we have scope to add improvements to the Bill.
Lord Grimstone of Boscobel (Con)
My Lords, I thank noble Lords for their insightful contributions to today’s debate. We have heard four speeches, all of which were eloquently delivered. The number of speeches was small but they were rich in content, and I congratulate noble Lords on that. I thank the noble Baroness, Lady Blake of Leeds, and the noble Lord, Lord Fox, for their constructive approach to this important legislation and the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, for the welcome they gave the Bill.
Many issues have been thoughtfully raised, and I will address as many as I can now. On some of the detailed points, I shall write to noble Lords, and I am sure we will come back to them in Committee. That will include the points made by the noble Lord, Lord Shipley, about interest and by the noble Earl, Lord Lytton, about service charges and whether it is appropriate to include them in the award. The noble Lord, Lord Fox, asked about geographical distribution, and I will find out all I can about that and write to him. I can confirm that the consultation on the Bill covered local authorities and their bodies.
I quickly remind noble Lords of what this Bill signifies and what it will achieve. Businesses which could not pay their rent due to the impacts of the pandemic have rightly been protected from evictions, seizure of goods and certain insolvency proceedings. As I said earlier, these businesses have now built up a significant amount of rent debt. I know that noble Lords welcome the fact that many tenants and landlords have been able to have open, transparent conversations, and I am thankful to those willing to be flexible when negotiating on unpaid rent. However, we have heard of plenty of cases where negotiation has been unsuccessful and agreement has not been reached. The Bill’s binding arbitration scheme is a proportionate and carefully crafted solution to these cases. It will provide the commercial tenants who need it the most and their landlords with the clarity and certainty they need to plan ahead and recover from the pandemic. In this way, the Bill will protect jobs—the noble Baroness, Lady Blake, is particularly concerned about the impact on society and jobs that we have seen during the dreadful pandemic—and, we hope, will enable a swift return to normal market conditions.
The noble Lords, Lord Shipley and Lord Fox, asked about the capacity of arbitrators to undertake this work and whether there would be sufficient arbitrators. I reassure noble Lords that we have worked closely with arbitration bodies during the development of the arbitration system. The application process which will permit an arbitration body to be included in the list of approved bodies will require it to evidence its capacity. We will not just take it for granted; it will be considered carefully before an arbitration body is admitted to the approved list. However, I believe our market-based approach of allowing arbitration bodies to set fees will ensure that on the one hand there is enough arbitrator capacity and on the other hand that the scheme is affordable.
On the autonomy of arbitrators, the Arbitration Act guarantees it. We can come back to that again in Committee.
The noble Lord, Lord Shipley, asked how the viability test would be applied. I know that the noble Baroness, Lady Blake, is also interested in this. That is probably best dealt with when are in Committee, where we can go through it in detail. I undertake to do that. The assessment of viability and solvency undertaken by arbitrators is an important step in determining whether relief from payment of rent debt should be granted. I think professional arbitrators will be able to do that. I do not want to disagree with the noble Lord, Lord Fox, about whether country solicitors are capable, but I assure him that someone who is not capable of being the appropriate arbitrator would not be put forward by the arbitration body. I am sure that neither of us would want the wrath of country solicitors to come down on our heads.
Lord Fox (LD)
As a point of information, it was the Minister who brought up country solicitors rather than me. Coming from the country, I need to be careful.
Lord Grimstone of Boscobel (Con)
I am constantly amazed by the noble Lord’s wit in these debates.
I hope that I can reassure noble Lords that these principles will ensure that the Bill supports businesses that will continue to prosper and contribute to our economy while protecting landlords.
I say to the noble Earl, Lord Lytton, that we will certainly come back in Committee to how the solvency tests will work. I will write with further details of that.
Noble Lords asked about the monitoring of arbitrators to ensure that they apply the principles consistently. First and foremost, arbitration bodies will appoint only arbitrators that are considered suitable to carry out the arbitration as set out in this Bill. An arbitration body also has the power to oversee any arbitration in relation to which it has appointed an arbitrator. So the arbitration bodies are in the front line of ensuring the quality of the arbitrators who will operate under the Bill.
The Secretary of State can request a report from approved arbitration bodies covering the exercise of their functions under this Bill. This report can include details on awards made and the application of the principles set out in the Bill to arbitration that they have overseen.
Noble Lords rightly asked about transparency. There is a requirement for arbitrators to publish the details of awards made, including the reasons behind them. This will show how arbitrators have applied the principles in the Bill to reach their decision. Over time, as noble Lords have mentioned, this will allow case law to be built up.
Lord Fox (LD)
Will the department retain the ability to withdraw the accreditation of arbitration bodies in the event that their performance proves to be unsatisfactory?
Lord Grimstone of Boscobel (Con)
I am sure that if an arbitration body is not performing satisfactorily there will be a mechanism to ensure that it does not carry on providing arbitrators, but I will check how that operates and include it in the letter that I will write to the noble Lord.
As this process continues, if there is a need to revise the guidance—for example, to clarify or add new information for arbitrators—the Secretary of State is able to do that.
Noble Lords, including the noble Lord, Lord Shipley, my noble friend Lord Lytton and the noble Lord, Lord Fox—it would have been simpler if I had just said everybody—asked about the affordability of arbitration. I think the market-based approach that we have adopted, in which arbitration bodies will set the fee levels, will work in practice. Arbitration bodies have, of course, extensive experience of costing and running schemes such as this; they are best placed to decide on fee levels to make the scheme affordable and accessible for parties, but also to incentivise arbitrators to take on cases and maximise capacity. We have tested the costs of similar arbitration schemes currently on offer in the market, and landlords and tenants in our consultations have both indicated that it is affordable. However, if it turns out not to be the case, Clause 19 gives the Secretary of State a power to make regulations specifying limits on the fees and expenses of arbitrators and approved arbitration bodies, if that is necessary.
The noble Lord, Lord Shipley, asked about opportunities for scrutinising the scheme once it has been implemented. I believe that ensuring that it is properly monitored will be a key aspect of a smooth delivery, and the most crucial way in which we will evaluate the scheme is through the requirement for arbitration bodies to publish their awards—a point I made earlier.
I understand that there may be concerns about the commercially sensitive nature of much of this information but, of course, arbitrators are required to exclude confidential information, including any commercially sensitive information, unless the person to whom it relates consents to its publication.
We really want the arbitration process to be as transparent as possible because, of course, it is in the public interest for it to be so. Transparency will help to establish market expectations of fair outcomes from the arbitration process on rent arrears for different business circumstances. Stakeholders raised questions—noble Lords are right—about transparency, but I believe that the relevant clause in the Bill will address that concern.
Noble Lords asked about consistency. Arbitration bodies will appoint only those arbitrators considered suitable to carry out arbitration as set out in the Bill. These bodies will also have the power to oversee any arbitration in relation to which they are appointed an arbitrator, which will provide the necessary safeguards we all want to see.
In conclusion, I thank all noble Lords who have engaged in today’s debate; it is a shame that we did not have a larger audience to see us in action. We have had informative and erudite contributions and, of course, as always, that is a testament to the wealth of experience in this House. I am conscious that I have not addressed all the detailed points raised by noble Lords but, of course, as well as writing, I am more than happy to meet to discuss any individual concerns as the Bill moves forward. It is a pleasure to be leading the Bill through the House, and I will warmly welcome engagement with noble Lords across the House to ensure that the Bill gives businesses and landlords the certainty and support they sorely need. I look forward to discussing it in Committee.
Commercial Rent (Coronavirus) Bill
Thursday 10th February 2022
(2 years, 9 months ago)
Grand CommitteeRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 92-I(a) Amendment for Grand Committee (Supplementary to the Marshalled List) - (9 Feb 2022)
The Deputy Chairman of Committees (Lord Haskel) (Lab)
My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Member’s explanatory statement
The amendment would ensure that subsection (3) applies to requirements for the closure of businesses or parts of businesses as well as those for the closure of premises or parts of premises.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, it is a pleasure to debate this important Bill in Grand Committee. I would first like to speak to a group of technical amendments tabled in my name, starting with Amendment 1 to Clause 4. This clause is vital to the Bill. It sets out what is meant by a business being “adversely affected by coronavirus”, with certain rent debts under such businesses’ tenancies being in scope for arbitration. Essentially, businesses or premises that were required by regulations to close during a specified period meet the test. Subsection (3) provides important clarity that a requirement to close at particular times is a closure requirement. Amendment 1 ensures that this provision applies in relation to closure of either premises or businesses, or parts of premises or businesses. I am sure noble Lords will agree that this minor amendment produces important clarification.
Turning to Amendment 4, arbitration under the Bill will provide a legally binding solution to unpaid commercial rent from the pandemic. This is important to give certainty and enable parties to return to normal contractual relations. If a tenant is awarded relief, such as a reduction in the protected rent they must pay, they should not have liability for the rest of the original debt. If a guarantor or former tenant ultimately pays the protected rent following an arbitral award, they should be required to pay only the sum required by the award. This should be the case whether, technically, a guarantee or an indemnity has been provided. Amendment 4 expressly sets out those effects of an award. This is intended to give clarity, as requested in a comment in written evidence in the other place. I am grateful to all those who took the time to give their feedback on the technicalities of the Bill. I am pleased to propose this additional clarity through Amendment 4.
Finally, I shall address Amendments 11 and 12. Schedule 2 contains a provision specifying that the Bill’s moratorium and related provisions on debt claims apply both to tenants and anyone who guarantees the tenant’s obligation. I am sure noble Lords will agree that this is important to ensure that the tenant has a genuine opportunity to access arbitration. Amendment 11 ensures that this provision’s protection applies to former tenants who may be liable for unpaid rent under a business tenancy, whether or not they have entered into an authorised guarantee agreement. Amendment 11 also clarifies that the provision applies whether, technically, a guarantee or indemnity has been provided. This amendment addresses a helpful comment made in written evidence in the other place.
Amendment 12 has the same effect as Amendment 11, but applies to Schedule 3’s moratorium and related provisions on winding-up petitions, bankruptcy orders and petitions.
I hope noble Lords will agree that these technical amendments provide useful clarity. I commend them to the Committee and I beg to move.
The Earl of Lytton (CB)
My Lords, far be it from me to delay any part of this important Bill, but I would like to be clear about the Minister’s insertion of “businesses or premises”. There does not necessarily seem to be a direct alignment between the two terms. For instance, is the closure of the business inescapably the product of a prohibition, as opposed to something that is advisory? I refer back to the great debate over whether something was guidance or mandatory. It seems to me that we could be looking at businesses with subsidiary operations and so on. If we are not careful, something that affects one part of a business but not the particular part we are talking about, namely the rent on particular premises, would not necessarily align. I would be grateful if the Minister could clarify what is intended there.
Lord Fox (LD)
My Lords, fools rush in where angels fear to tread—I shall try to speak briefly. I welcome the fact that the Minister has been flexible and responded to points raised in the other House. Government Amendment 4 is a really good thing, but I have the same question: is this guidance or a mandatory process for the arbitrators? My understanding is that, if a tenant is able to reach a settlement through this process, that tenant no longer carries the stain of the unpaid element of the arbitration process. That therefore means that this would not stand against their credit rating and I wonder whether the Government have considered how this might not filter through into the credit rating system. As I am sure the Minister knows, the credit rating system tends to make life very difficult if you get on the wrong side of it. Some clarity on that would be really helpful.
Baroness Blake of Leeds (Lab)
My Lords, I also extend our thanks to the Minister for his courtesy, as always, and for picking up these—as he made clear—technical issues. We have received numerous representations on the Bill from stakeholders. I was pleased to hear the Government picking up some of the very detailed concerns about liabilities. We recognise Amendments 11 and 12 as positive, reflecting the concerns raised by stakeholders. I shall be interested in hearing the clarifications from the Minister on the points raised by the noble Earl, Lord Lytton, and the noble Lord, Lord Fox, particularly on definitions. The complexity of these areas makes us all try to look at the unintended consequences that could flow from making one change. Sadly, we know the pressures that so many of these businesses and tenants are under and the potential risk to their future liability.
Lord Fox (LD)
With apologies to the Minister, I forgot to complete what I was going to ask with respect to government Amendments 11 and 12. Would they in any way change the relationship with former tenants who have unpaid rent when it comes to the process of recovering that rent? That was not clear to me from what the Minister said, probably because it was not the intention of what he was describing. Can he clarify that they would not in any way downgrade the landlord’s ability to pursue unpaid debt from a former tenant?
Lord Grimstone of Boscobel (Con)
My Lords, I thank noble Lords for those points. I will answer them as best as I can because there are some technical issues underlying this. I hope noble Lords will not mind if I have to write in amplification of the answers I give.
First, on the point made by the noble Earl, Lord Lytton, the coronavirus regulations imposed mandated closure requirements on either businesses or premises. Sometimes the run two together but they do not necessarily do so. The Bill applies to all such cases where there was a requirement in the coronavirus legislation so one has to look back to that legislation to understand the difference between businesses and premises in it. However, I will write to clarify that further for the noble Earl.
On the question asked by the noble Lord, Lord Fox, the intention is that the arbitral award, which is binding, will substitute itself for the debt that previously existed. On that basis, it should not apply to the credit rating of the person concerned. Having said that, I guess we all have experience, either directly or through colleagues, of where that perhaps has not flowed through to the outcome as it should have done—in which case, the answer, I am sure, is that one must take it up with a credit rating agency. However, if that were to happen, it would be an error that would then have to be corrected.
Lord Fox (LD)
In the likely event that the Bill becomes law, might there be some way for the department to inform the credit rating agencies about this process? The last thing a business needs if it is trying to get back up and running is to find that its credit has been shut down. Some pre-emptive action with the key credit rating agencies might help to alleviate the situation.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that suggestion; I will make sure that we look at it and take it up. Again, it may even be something that we can mention in the guidance as a point of information for those affected.
On the noble Lord’s further point, when a former tenant is liable for the current tenant’s obligations, the Bill prevents landlords exercising relevant remedies against them in respect of protected debt. This is during the Bill’s temporary moratorium period, which is considered as the period during which the arbitration system is open to applications or an arbitration is ongoing. That may not have answered the noble Lord’s questions fully, but I will amplify my answer in correspondence with him.
Baroness Blake of Leeds
“(2A) The Secretary of State must ensure that bodies approved under subsection (1) have adequate resources and sufficient numbers of arbitrators as are (whether alone or as a member of a panel of arbitrators) required to conduct arbitrations under this Part.”Member’s explanatory statement
This probing amendment would require the Secretary of State to ensure that the approved arbitration bodies collectively have sufficient capacity, and resourcing, to hear all arbitrations under this Part.
Baroness Blake of Leeds (Lab)
I am grateful for the contribution that the noble Lord, Lord Fox, has made in this grouping and look forward to the discussions that we will have, recognising the additional amendment in this group.
I again thank the Minister for the attention to detail in representing the representations from stakeholders —importantly, from both tenants and landlords. I thank him, too, for his letter responding to the concerns raised by noble Lords at Second Reading. I just want to make the point about understanding the real pressure that businesses, tenants and landlords are under at the moment. It has been an incredibly difficult winter for many businesses, as we know and, of course, we are in a situation where we face ongoing pressures from the national insurance rise, energy costs and inflationary pressures. It is a time of great uncertainty for many people affected by the Bill before us. We welcome the moves forward as outlined in the Bill, recognising the complexity and the absolute need to get the detail right, but also the time pressures and the fact that the clock has been ticking for many businesses for some time now.
Of course, running through all that, it is essential that stakeholders have confidence in the system. The reason for Amendment 2 is the need to ensure absolutely that bodies under subsection (1) have adequate resources and sufficient numbers of arbitrators. Through this amendment, we seek reassurance with regard to immediate capacity, but I would also like to ask about evidence and what understanding there is of how much work has been done on resourcing the needs and future demands on services for all those involved. It is essential that everyone feels that they have proper access to a fair hearing. I should like the assurance that all due consideration has been given to the proposed nature of the hearings.
I understand that the assumption is that the hearings will be in public and that oral hearings may be desired by the parties involved. Could that have an undue impact on costs? Would they add to the capacity requirements of the arbitrators? Am I right to understand that a document-only approach would allow for a more efficient process? Is that the understanding behind the direction of travel, and would this be seen to keep costs and time lower?
We understand from our discussions at Second Reading that many cases have now moved to be settled. Would we be right in assuming that the outstanding ones may well be more complex, which explains why they are moving forward to seeking arbitration, as laid out? My question remains: has a full assessment been undertaken with regard to the demands of the services of arbitrators? I am sure that the noble Lord, Lord Fox, will expand on the issues around accessibility to the services.
Amendment 3 would increase the transparency of the arbitrator’s decision, which we have emphasised in the debates in the other place—and I refer to the discussions that were held there.
I regard Amendment 5 as positive and, again, is one that we tabled in the other place. We are concerned that the arbitration fees could be the final cost to push landlords and businesses over the edge. Therefore, we consider that the Secretary of State should ensure that fees are capped. As I said at the outset, this is a time when costs are escalating in so many different areas; we would like the absolute assurance that this area has been considered and controlled.
Can we also be assured that arbitration fees and expenses will be proportionate to the arrears that have caused the dispute? High arbitration costs will have a huge impact on businesses that are doing everything they can to emerge from the pressures that they have been facing. The fact that they need to go to arbitration highlights those pressures. Will the Minister expand on the powers that the Secretary of State will have to make regulations specifying limits on the fees and expenses of arbitrators? What circumstances would lead to the Secretary of State becoming involved, and how will affordability be judged?
With regard to Amendment 7, also in my name, can the Minister say more about what, in his view, constitute viable and unviable businesses? Further, could he expand on what guidance will be provided to arbitrators? Do we know how much flexibility they will have? We all recognise the difficulty of defining what constitutes viability or affordability, but this is such an important area that we need to push further to make sure that we have a clearer definition. That is why we seek more answers in this area and to add more depth to some of our previous discussions.
The noble Lord, Lord Fox, has tabled Amendment 7A, and I shall listen with interest—sorry, this is a double use of the word—to the cap on interest. I am interested in the interest on the interest. With those points, I beg to move.
Lord Fox (LD)
My Lords, I shall speak to Amendments 3, 5 and 7A in my name, and in support of the other amendments in the group, most of which I countersigned and one that I, mysteriously, did not. I am not sure why, because I agree with it completely. It certainly does not have any lower rating because I failed to sign it.
My three amendments are relatively self-explanatory and I shall be brief, but the Minister should not mistake that brevity for the idea that I do not think they are important. I can speak for longer if necessary. Amendment 3 would ensure that arbitration decisions are easily accessible. The basis for that is that, although we do not have long to get through this process, building up a body of case law, or case decision-making, will be important for consistency. What worries me most is complete inconsistency in how these rulings are made. I think we will come to the last point that the noble Baroness, Lady Blake, made about viability, which is where inconsistency will be most a problem. One starting point is to publish fully and accessibly. It would be better if the Government had their own website which scraped them up and put them all in one place so that people would not have to go to various places but, at the very least, they should be easily available somewhere.
Amendment 5, which has some crossover with parts of Amendment 6, requires the Secretary of State to make regulations specifying limits on arbitration fees. The Minister will see that the word “may” is employed, and I am sure he will tell us that this is a legislative trope and that this is how it is done. That is what I expect. Therefore, it will be sufficient if the Minister stands up at the Dispatch Box and says that such regulation will be brought forward at the earliest opportunity and the word “may” remains in the legislation. That would clearly clarify the Government’s intention as to whether this process will happen.
I apologise for the late arrival of Amendment 7A, and I really appreciate the help of the Public Bill Office and others in drafting it so that it is in scope of the Bill. The aim of this amendment is to put a cap on the level of interest that can be baked into the arbitration. This is important because otherwise it will be a lever used in the negotiation. In other words, the landlord will say, “Yes, I’ll do this deal but I expect interest of X or Y”, and clearly that interest level may not be to the advantage of the tenant. Therefore, putting this in removes that lever from the arbitration process. It knowingly and deliberately moves it so that the negotiation is on different ground. The Minister will have noted that I often speak up against secondary legislation—indeed, we have some coming later—but in this case it seems to me that Amendments 5 and 7A are good examples of what secondary legislation was designed for.
I turn briefly to the amendments in the name of the noble Baroness, Lady Blake. Amendment 2 is a sensible measure to ensure that there are sufficient arbitrators. The Minister has said on occasion that there are sufficient, but to some extent he is relying on the word of the organisations concerned. I think it unlikely that they would say, “No, Minister, we can’t do it”. This amendment forces that assurance process a little harder.
Amendment 6 further supports Amendments 5 and 2, in my view. I thank the Minister for his letter. One element of that was to set out the distribution of potential cases. The question I have is whether the availability matches the potential cases. For example, it seems that there is a concentration of potential cases in the south-east, and it seems likely to me that there is probably a concentration of resources for arbitration in the south-east. But what of the towns where the commercial infrastructure has dwindled and where there are not the people who fit the arbitration photofit that the Minister described? How has the Minister ascertained that those towns, cities and villages, which will need arbitration just as much as the bigger places, will have the supply they need? If they do not have the supply locally, on their doorstep, how will that be supplied otherwise? It is not just whether they are sufficient in the country but whether the footprint of those arbitrators matches the expected need.
Then we come to Amendment 7, the one I did not sign, which is strange because I think it is really important. The questions I asked in the debate before Second Reading were, “What is viability?” and “On what forward data is viability assessed?”. One percentage point on expected interest rates, one or two percentage points different on expected inflation and one percentage point up or down on the RPI are the difference between life and death for a business. When the arbitrator sits down at looks at viability, from where is that arbitrator going to get that data and how can we ensure that the data is consistent? The Treasury and the Bank of England often get it wrong when it comes to forecasting data—with all due respect to the Deputy Chairman’s son, who I believe has the job of making some of that data. The point is that we have to use something. Is it up to the arbitrator to decide which projection for RPI, which interest rate data and which inflation data are to be used? This is the difference.
What does viability mean? Is it wiping your face in the colloquial, is it a 5% return on capital employed or what? What do we mean? How do we make sure that businesses are not shut down that in other places are determined viable? This is a difficult question to answer but it is a crucial point, on which the effectiveness of this legislation will turn.
The Earl of Lytton (CB)
My Lords, I shall make a few general comments about this group, which I certainly relate to. The Minister will doubtless have seen the item I sent in the past day or so from the Property Litigation Association, which I copied to a number of other noble Lords, about its concerns over the geometry of the arbitration process. With regard to the number of arbitrations, a matter raised by the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, the final quantum of those willing to participate will not be known until the Bill and any regulations have been finalised, so willingness to participate may well depend on what is set out in them, what happens about any caps and proportionality relating to costs in the arbitration.
On the costs in the arbitration, my limited experience suggests that the process is capable of being gamed with bad behaviours referred to in an email I had from the property industry and brinkmanship as a predetermined tactic. Given that arbitration is not an inherently cheap process in such circumstances, I wonder what safeguards there are against, for instance, a bully-boy multiple having a go at a series of small landlords, a not unheard of situation. Unfortunately, the British Property Federation, which represents larger landlords, does not have data on what the impact is. I will be very interested to know whether there is any data.
I have concerns about arbitrator discretion. As I understand it, under the provisions of Arbitration Act 1996 the parameters of the arbitrator’s decision-making function are that he has to decide on one or other of the two cases before him. He is not in an inquisitorial position to try to fillet out bits of one and insert them in bits of the other, so when it is a question of what interest rate will be applied, it will be a matter of what is presented to him or her as arbitrator. If there is to be some change in this non-inquisitorial function of arbitrators—I am not suggesting that there could or should be—I can see that, if we are talking about the interests of justice rather than the much vaunted justice of Solomon, we might wish to review what is happening.
On the question of arbitration awards, again, my understanding is that these are normally private, not public, occasions. To the extent that it is proposed that the outcomes of those should be relaxed, I should like to know what revised terms, guidance or direction will follow. That might well have an impact—going back to the first point I made—on those who are already trained arbitrators who might wish to participate in this scheme and may regard the matter as a sufficiently aberrant novelty not to want to participate. I see this matter as a somewhat circular approach and would very much like clarification because I want the Bill to work in practice.
Lord Fox (LD)
I hope it is order for me to ask if the noble Lord agrees with me that the so-called bully-boy tenants that the Minister described are going about their bullying within the current system? How much more does this system facilitate their ability to bully or otherwise than the current system, given that we have seen high-street multiples hold their landlords to ransom without this legislation? Why would this legislation make it any easier for them to do that?
The Earl of Lytton (CB)
My Lords, the noble Lord asked a pertinent question and the short answer goes back to my earlier intervention. The impact on business and on premises are two separate things. Those are being coalesced into what has happened in terms of non-payment of rent and a build-up of arrears. All I would say is that it is just another factor that adds into a range of factors that he rightly points out are already in play. It adds to the complexity.
Lord Thurlow (CB)
Perhaps I may address the group on some general points that have been touched on already. I am concerned about whether we in the surveyors’ industry, or wherever the other arbitrators may be sourced from, will be able to provide sufficient numbers of arbitrators. There are mixed opinions on the anticipated number of cases requiring arbitration and there will be a significant difference in their characteristics.
I know that the Bill sets out that the Government will ensure that there will be adequate arbitrators but what will happen if there are not? Arbitrators cannot be trained overnight or sourced quickly. There could be a logjam, which would also spill over into proposals to review the progress of the system.
I turn from Amendment 2 to Amendments 6 and 7. I echo the comments of the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, about cost and proportionate fees for arbitration. One cannot compare an arbitration on 250,000 square feet in Canary Wharf with one on a small shop in the Balls Pond Road. It is a different universe and will require different skills. The sums of money involved are hugely different. The fees must be proportionate and, in particular, must not penalise the small trader or small landlord. It might involve a private landlord with a single shop; we have heard about the multiple traders bullying landlords and the issue would apply there, too. I just wanted to make those two points.
Lord Grimstone of Boscobel (Con)
Again, I thank noble Lords for their contributions on this group. I thank the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, for their attention to the important issues raised through their amendments. I am grateful for the constructive debate we have had on this, complicated though it is. I have to say to start with that I very much agree with the noble Baroness about the extreme pressure that businesses have been under during this very worrying time. I hope that this Bill will be a small contribution, at least for some, to easing that worry.
Turning first to Amendment 2, I thank the noble Baroness and noble Lords for their consideration of the issue of ensuring adequate arbitrator capacity and administrative support by arbitration bodies. These are key to achieving our aim for disputes to be resolved quickly. As I said before, we have thought it right to adopt a market-based policy approach. This means that approved arbitration bodies, which have expertise in running schemes like this and mounting these things—they will not have run an identical scheme to this one but they will have run similar schemes in the past because it is, in a sense, their core business—will manage their internal capacity processes to perform their functions in the Bill to the required standard.
I believe that this approach of empowering arbitration bodies to manage their internal workflows is the optimal way to ensure that there is enough capacity in the system to deal with the caseload. Not only have my officials been in deep contact with the arbitration bodies about this but I myself held a round table with some of them earlier in the week. I probed them very hard on these matters and, I must say, I got replies that satisfied me as to their ability to cope with this and put the systems in place. In a sense, their very reputation as arbitral bodies depends on them being able to do things like this.
Of course, adopting a more market-based approach does not mean that we are not taking action to engage with the issues of arbitrator capacity and arbitration body resource capability. As I said, we have been engaging extensively and on an ongoing basis with arbitration bodies in relation to these issues, and we will continue to do so. If tweaks have to be made, we will certainly make them.
Let me give a bit more colour to that. The application process for bodies to become approved contains a question on the number of arbitrators listed with the body that would be potentially suitable for the scheme. This is designed to ensure that the arbitration bodies that are approved will be able to list, and therefore appoint, a sufficient number of arbitrators. In any event, simply looking at the number of arbitrators that arbitration bodies can list underrepresents the capacity in the system because it disregards the fact that an arbitrator will be able to take on more than one case at a time.
The noble Lord, Lord Fox, asked, quite properly, about the geographical dispersion of arbitrators. It is very much our intention in the Bill that this is a documents-based process; to that extent, geographical location is less relevant. Also, our belief is that a lot of this will be conducted online by the arbitrators, so the things in this Bill will not necessarily turn on whether there is a local arbitrator on this.
Lord Fox (LD)
I thank the Minister for his answer and accept that position, but I think he would also agree that, in order to assess the viability of a particular business correctly, local knowledge is quite helpful. The idea that, at its extreme, you are sat in a village in Herefordshire conversing with someone in Westminster and doing the process, could create confusion.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that intervention. Of course, in the cases put before the arbitrator, one would expect either the tenant or the landlord themselves to refer to those local issues, but it is of course absolutely open to the arbitrator to call for more information or evidence to deal with that local point. Indeed, it may well be sensible in many cases to appoint an arbitrator who has local knowledge, but I think that the system will adjust and do that as necessary.
The noble Baroness, Lady Blake, asked whether the outstanding cases—we are down to a number in the low thousands now—are, by definition, likely to be the more difficult ones. Some of them are likely to be more difficult but, frankly, quite a proportion of them will involve people who have just been ignoring this topic, hoping that it will go away and something will turn up. Obviously there is something in the noble Baroness’s point, but there is a variety of factors that may be the reason why people have not yet come forward to settle by themselves. Of course, as I have said previously, it is very much our wish that people settle this themselves when they can.
I was asked about viability—and I will come back to it again later. It is difficult to be overly prescriptive about viability. The Bill deliberately does not define viability specifically because—this comes back to the geographical point from the noble Lord, Lord Fox—arbitrators need to make the assessment in the context of each individual business’s circumstances, especially given the variety of businesses that may use the scheme. It is essential that arbitrators do that, and have the flexibility to do that, to achieve a fair outcome. We will produce more statutory guidance for arbitrators on this, but I have confidence because, in a sense, it is their whole business to be able to arbitrate matters—that is, to weigh up the necessary factors and come to a sensible conclusion.
Lord Fox (LD)
I appreciate that, and I am pleased that there will be more statutory guidance. It seems to me that the sources of data should not be the topic under discussion during the arbitration process. Can the Minister give us some sense of the basis on which people are making decisions, while at the same time accepting my point that there are local variations in markets and that this element would take out some aspects of what could be, in the words of the noble Earl, Lord Lytton, gamed?
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that intervention. From talking to some of the arbitration bodies, I know that the way they operate is that, when a case like this comes to a body for it to decide on the arbitrator, normally a list of arbitrators is put in front of the parties for them to choose. This is a thoughtful process, as it were. The list of names that the arbitral bodies put before the parties to choose an arbitrator is done rationally. Frankly, one would expect that, if there are locally based arbitrators to do this, they will be the people on the list; the parties may then choose them. I cannot give the noble Lord an absolute guarantee in relation to that but it seems to me that, sensibly, this will be how the system should, and will, operate.
Turning to Amendment 3, I thank the noble Lord, Lord Fox, for his interest in the publication of awards. We absolutely want to ensure that the public can easily access arbitral awards issued under this scheme. That is why Clause 18 already requires arbitrators to publish an award made, together with the reasons for making it. I am sure that, as this scheme rolls out, if we find that this publicity is not reaching the people it needs to, we will take steps to ensure that it does.
We do not believe it is necessary to require approved arbitration bodies to publish decisions as well, although some may well choose to. In addition, we envisage that as part of its function of overseeing an arbitration, an approved arbitration body would ensure that the award is published as required. Frankly, the convenient way to do that would be on the website of the arbitral body. We are in ongoing discussions with arbitration bodies regarding how to ensure that awards are published in an accessible manner for landlords and tenants who are considering making a reference to arbitration.
I think we are in absolutely the same place on the need for this. I hope I have persuaded the noble Lord that this amendment is not necessary and I request that he does not press it.
Turning to Amendment 5, I thank the noble Baroness, Lady Blake, the noble Lord, Lord Fox, and other noble Lords who have spoken for their consideration of the important issue of arbitration fees and the Secretary of State’s power to cap those fees. I assure your Lordships that we also want to ensure that all those who need to access the scheme can do so. That is why, for example, when arbitration bodies seek approval we are specifically asking them what they intend to do to make sure the scheme is affordable for SMEs.
As I have mentioned, the Bill adopts a market-based approach. Approved arbitration bodies, which have expertise in running and costing similar schemes, will have the function of setting fees. It has been made clear that while fees should be set at a level that incentivises arbitrators to act, it is important that the scheme is affordable for all those who need to access it. Capping fees prematurely could reduce the number of arbitrators able to act and in a sense would compound the problem that we are trying to solve. A cap should therefore be imposed only where there is evidence that it is needed. There is presently no such evidence but, if it were to emerge, the Secretary of State is prepared to exercise the power to cap fees.
Lord Thurlow (CB)
Just to add a little substance to the Minister’s point about the proportionality of fees, I think it worth mentioning that in order to present their case to the arbitrator, SMEs in particular will be engaging professionals who charge fees—accountants, surveyors and possibly many others. All this presses upon the delicate P&L of SMEs and, I fear, will have the effect of reducing the numbers that seek arbitration simply because they cannot afford it. That is a supplementary point to the cost of the arbitration. I am just pointing out that there are a lot of ancillary fees.
Lord Grimstone of Boscobel (Con)
I thank the noble Lord for that intervention. I understand the point that he is making. Having said that, I think it is right to see how this develops in practice as it moves forward. The Secretary of State has the power to cap fees, but to do that at the beginning could have the perverse effect of worsening the situation by meaning that there will be fewer arbitrators coming forward to do this.
Perhaps I may clarify a point I made earlier about the parties choosing an arbitrator. Formally, of course, the arbitrator is chosen by the arbitral bodies but, from discussion with those bodies, it is clear that they work through with the parties who might be the most appropriate arbitrator to appoint in a certain case.
We do not intend to produce guidelines specifying the factors to be considered in relation to the use of the power to cap fees, but I say categorically that the affordability of the scheme and whether arbitrators are sufficiently incentivised to act will be considered with any other relevant factors, if ever the Secretary of State decides that the power has to be exercised. In conclusion on that amendment, I know that, like us, the noble Baroness and the noble Lords who have spoken are keen to ensure that there are enough arbitrators to administer the scheme, and I therefore ask for Amendment 2 to be withdrawn.
On Amendment 6, which also concerns the Secretary of State’s powers to cap arbitration fees, I am again grateful to the noble Baroness and the noble Lord for emphasising the point about the affordability and accessibility of the scheme, should the power to cap fees be exercised. As I have said before, I agree that these are crucial issues. If the Secretary of State were to exercise the power to cap fees, I can reassure the noble Baroness and the noble Lord that the ability of landlords and tenants to access the scheme and the affordability of arbitration fees would of course be considered, along with other relevant factors such as whether arbitrators are sufficiently incentivised to take on cases. I reiterate that the Government will continue to work with approved arbitration bodies to monitor arbitration fees as well as arbitrator capacity. As I said, the Secretary of State will use these delegated powers only if it seems the right thing to do, taking into account the factors at the time.
The Bill gives arbitration bodies that are experienced at costing such schemes the power to set their own fee levels according to market demand. These fees will be publicised, and it will be possible to compare the fees of one arbitral body with those of another. We will absolutely monitor this and make sure that it is balanced with the other considerations to which I have referred. In conclusion, we will continue to work with approved arbitration bodies to monitor arbitration fees, as well as arbitrator capacity. Therefore, I hope that the noble Baroness and the noble Lord are reassured, and I request that Amendment 6 not be pressed.
On Amendment 7, the noble Baroness has proposed an amendment that would require the Secretary of State to issue guidance to arbitrators on two specific points: how the viability of the tenant’s business should be assessed and over what timescale. I agree that these issues are important, but I hope to persuade her that the amendment is unnecessary.
I hope she would agree that a very large variety of businesses of different sizes in a diverse range of business sectors may use the arbitration process provided in the Bill. In light of that, it is clear that arbitrators need the flexibility to make the assessment of viability against the context in which the individual business operates, considering the different kinds of evidence that may be available. We have to be alive to the danger of being too prescriptive, as a one-size-fits-all approach could lead to unfair arbitration outcomes.
That said, the Government are providing assistance to arbitrators who have to make these assessments. There is a list of factors that the arbitrator must consider when assessing viability in Clause 16. Annexe B of the revised code of practice sets out a detailed non-exhaustive list of the types of evidence that tenants, landlords and arbitrators should consider when assessing the viability of a tenant’s business and the impact of any relief on protected rent debt on the landlord’s solvency.
The Earl of Lytton (CB)
Perhaps I may pick up on a couple of points that the Minister made. It appears that he envisages that the arbitrator will have to use quite a lot of his own discretion. In my way of thinking, that does not fall under the Arbitration Act 1996 and is, in fact, an adjudication process of a rather different nature. He is probably not in a position to answer that right now, and if he would write to me, that would be fine. However, I worry that the way in which the Government see arbitration here is irregular in terms of what most people would understand as the strictures of arbitration.
Lord Grimstone of Boscobel (Con)
My Lords, I thank the noble Earl for his intervention. The best answer I can give is that it has been fully discussed with the arbitral bodies whether this is something that they feel the arbitrators they are responsible for can do. I have had complete reassurance on this point, but I will consider it again and write to the noble Earl.
Baroness Blake of Leeds (Lab)
I conclude by thanking the Minister for his very full responses to the concerns raised in this group of amendments. It is fair to say there is still some concern that we will probably pursue at the next stages. I wonder whether the Minister can write to let me know when the statutory guidance, particularly on viability, is likely to be made public. Again, we are in difficulty when we have not had sight of the guidance around the Bill. I do not want to open old wounds again, but it is a recurring theme that we have to deal with. Any clarity on that would be helpful.
I am grateful for the responses but, without going through all the detail again, in taking this work forward it is essential that all the parties have confidence in what is being put before them. The issues raised today are consistency, clarity, transparency and fairness. We must make sure that whatever comes through is deemed to have all those principles or qualities, wherever in the country you happen to be. I admit that I share the concerns of the noble Lord, Lord Fox, about local knowledge. Looking at the statistics, it is clear that certain parts of the country have been affected more than others. The stress that those areas are feeling is also not equally shared in relation to some of the big issues we have coming forward.
Lord Grimstone of Boscobel (Con)
It may be helpful if I say that I understand the noble Baroness’s point about guidance. It is very much our intention to publish the draft guidance before Report. I will keep the noble Baroness and noble Lords in touch with that. I understand why that question has been asked.
Baroness Blake of Leeds (Lab)
I thank the Minister for that intervention. We will look forward with interest to the guidance coming through. It is essential that it comes before Report, if I am allowed to say that. With those comments, and looking forward to further clarification, I beg leave to withdraw the amendment.
“(8A) An award giving the tenant relief from payment of a protected rent debt is to be taken as altering the effect of the terms of tenancy in relation to the protected rent constituting the debt. (8B) Subsection (8A) means, in particular, that—(a) the tenant is not to be regarded as in breach of covenant by virtue of—(i) non-payment of an amount written off by the award, or(ii) failure to pay an amount payable under the terms of the award before it falls due under those terms;(b) a guarantor of the tenant’s obligation to pay rent, or a former tenant who is otherwise liable for a failure by the tenant to pay rent, is not liable in respect of anything mentioned in paragraph (a)(i) or (ii);(c) a person other than the tenant who is liable for the payment of rent on an indemnity basis is not liable—(i) to pay any unpaid protected rent written off by the award, or(ii) to pay an amount payable under the terms of the award before it falls due under those terms;(d) any amount payable under the terms of the award is to be treated for the purposes of the tenancy as rent payable under the tenancy.”Member’s explanatory statement
The amendment would clarify that an arbitrator’s award of relief from payment of protected rent alters the effect of tenancy terms as to the payment of that rent. This means that any other person liable to pay the protected rent is only liable in relation to payments required under the award.
Member’s explanatory statement
The amendment would bring the language into line with the corresponding wording in Clause 4.
Lord Grimstone of Boscobel (Con)
My Lords, in moving Amendment 8, I am pleased to speak also to Amendments 9 to Clause 27. Both are in my name. Clause 27 provides a power to apply provisions of the Bill again in order to act swiftly in the event of another wave of coronavirus requiring further mandated closures.
Amendment 9 would ensure that the power can be used for mandated closure after the protected period in the Bill, whether before or after the Bill is passed, and whether or not the closure requirement has ended when regulations are made. Amendments 8 and 9 also clarify the meaning of a closure requirement, and more closely align the drafting with corresponding provisions of Clause 4. We have seen that the Covid landscape can change very quickly; Amendments 8 and 9 are therefore to ensure the power is clear and robust for any new waves. I beg to move.
Lord Fox (LD)
My Lords, I shall reserve almost all that I shall say about Clause 27 for the next debate—but it is good, if Clause 27 survives, that its language should be consistent with the other parts of the Bill. However, we shall debate its existence later.
“(2) A business tenancy is adversely affected by a closure requirement for the purposes of subsection (1) if—(a) the whole or part of a business carried on at or from the premises comprised in the tenancy, or(b) the whole or part of those premises,is of a description subject to a closure requirement imposed at any time after 7 August 2021.(2A) In this section “closure requirement” means a requirement imposed by regulations as a public health response to coronavirus and expressed as an obligation—(a) to close businesses, or parts of businesses, of a specified description, or(b) to close premises, or parts of premises, of a specified description.(2B) In subsection (2A) “coronavirus” means severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).(2C) The power under this section is exercisable whether or not the closure requirement remains in force when the regulations are made.(2D) Subsections (3) to (5) of section 4 apply for purposes of this section as they apply for purposes of section 4.”Member’s explanatory statement
The amendment would clarify the meaning of terms used in Clause 27 and bring its drafting more in line with corresponding provisions of Clause 4. It would also ensure that the Clause 27 power is exercisable in relation to new closure requirements imposed before the Bill is enacted as well as any imposed subsequently.
Lord Fox (LD)
My Lords, Clause 27 would establish the Henry VIII power, which has drawn the ire of the Delegated Powers and Regulatory Reform Committee—so this speech will come as no surprise to the Minister or, indeed, the noble Baroness, Lady Bloomfield, who heard a slightly different version of it earlier this week. Thereby hangs a tale, because this is a consistent practice of the Government in legislating not just for the present but putting in place measures whereby the Bill cannot just be continued or rolled over but rolled over and substantially changed. In this case, Clause 27 gives Ministers very broad discretion to change how the Bill would work in future periods of coronavirus control. It would allow changes of a kind that would give rise to serious policy issues and this ought not to be a matter for secondary legislation.
Turning to the detail, the Bill applies to business closures that took place in two specific periods—11 March 2020 to 18 July 2021, for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. However, Clause 27 gives the Secretary of State powers to make regulations that allow the Bill to apply to future periods of coronavirus control.
Baroness Blake of Leeds (Lab)
I put my name to this stand part notice in the name of the noble Lord, Lord Fox, in the light of the very direct comments we can see in the DPRRC’s report. I am sure that those comments were not made lightly and came from a position of real concern. In my short time in this House, I have picked up that this is a recurring theme and concern. Wherever we have the opportunity to call this out and seek to address the direction of travel, I believe it is our duty to do so.
Having said that, we recognise that it is important to make sure that mechanisms are in place to deal with future potential outbreaks of this pandemic or, indeed, other situations or pandemics that might arise in future. So, in supporting the direction of travel, we ask that the Act be amended by primary legislation to update the arbitration moratorium period. I hope that this would support the DPRRC’s recommendation but ensure that we would be able to extend the period if further restrictions became necessary.
Lord Thurlow (CB)
I do not want to make any specific points here, but I echo the very important point made by the Delegated Powers and Regulatory Reform Committee. As a House, we have been assaulted with these clauses with increasing frequency over the past few years. The Delegated Powers Committee has written an unprompted report criticising the adoption of these powers.
On this Bill, I think it unnecessary because we are dealing with a generic problem. I feel that it could be comfortably addressed if there was a need for further extensions as a result of outbreaks. It could be rolled forward, with amendments as required, in primary legislation. The bulk of the work—the hard work—has been done, so I echo the comments in the previous speeches.
Lord Grimstone of Boscobel (Con)
My Lords, I am grateful to the noble Lord, Lord Fox, and the noble Baroness, Lady Blake, for notification of their intention to oppose the Question that Clause 27 stand part of the Bill, and for highlighting the concerns expressed by the DPRRC. I also listened carefully to the comments of the noble Lord, Lord Thurlow, of course.
As has been stated in both the other House and this House, we have already seen with the omicron variant that the future of the pandemic is uncertain. I believe that the power in Clause 27 is important because it provides the Government with the ability to take a flexible and targeted approach to reapply any or all of the provisions in the Bill to respond to the specific circumstances of any future periods of coronavirus. None of us can predict what will happen. I assure noble Lords that we will of course always exercise this power in accordance with human rights.
Having said that, we are grateful for the report of the Delegated Powers and Regulatory Reform Committee. I acknowledge that it makes some important points, which I will consider carefully as we prepare for Report.
Lord Fox (LD)
I am not sure whether I have to withdraw, but I thank the Minister for his comments. We look forward to consulting between Committee and Report. This is important. I cannot speak for the noble Baroness, Lady Blake, but I suspect that we would both consider it necessary to take this forward in the event that the Minister was unable to meet the DPRRC at least most of the way.
“Review of the impact of this Act
(1) Four months after the day on which this Act is passed the Secretary of State must publish a review of the impact of this Act and whether it has provided tenants and landlords with an effective process of arbitration.(2) The review in subsection (1) must make an assessment as to whether awards issued under this Act have been given in a fair and consistent manner.(3) The review must also include an assessment as to whether further guidance should be issued as a result of its findings.(4) The Secretary of State must lay a copy of the review before both Houses of Parliament.”Member’s explanatory statement
This amendment would require the Secretary of State to review the impact of this Act four months after the Act has been passed.
Lord Fox (LD)
My Lords, we are on the last group— so soon. The amendment
“would require the Secretary of State to review the impact of this Act four months after the Act has been passed.”
That is unusual because, normally, the review process is one year, or five years, or whatever. However, we need to look at Clause 9, which sets a time limit of six months from when the Act is invoked or enacted for people to submit their process. I may have misunderstood —if so, I hope the Minister can put me right—but, if that is the case and that six months is a serious period, we need to assess the progress of this Bill in time for the Minister to roll it forward; the Bill makes provision for that, as I understand it.
We have talked about availability; the Minister has said that he will keep this under review. We have talked about cost; the Minister has said that he will keep this under review. We have talked about regional distribution and how that works; the Minister has said that he will keep this under review. My amendment would create a process that allows this review to happen formally so that your Lordships’ House and the Commons have time to roll this forward if some of the issues that we have discussed are preventing the process going forward.
I want to say one thing on the subject of fees. It comes back to a point that I ask the Minister to continue to review. As the noble Lord—Lord who? Sorry, Lord Thurlow—pointed out, there are a lot of ancillary costs other than the cost of the arbitration process itself; there is the cost of preparing for it, for example. In the end, this can be a loaded gun that the landlord—or the tenant, depending on which way it goes—can use. In other words, “It’s going to cost you this anyway so you might as well give me that”. I do not think that that is the purpose of this Bill. The Bill’s purpose is not to enrich massively dozens of service industries; it is designed to keep commerce rolling. One thing that must be reviewed, and one reason why we are keen to have this four-month review, is the question of whether the cost of fees is causing unfair settlements to occur. With that, I beg to move.
Baroness Blake of Leeds (Lab)
I am pleased to put my name to Amendment 10 and stand here to support it.
Constant reference has been made to monitoring the progress of the matters we have discussed, in particular to assessing the impact on all parties in the spirit of fairness and consistency. I believe that such a review would be welcomed by all parties: landlords, tenants and arbitrators. We must ensure that it is fully understood and clear as to whether the system is well understood, is working well and, most of all, is bringing benefit to those areas where it is needed most.
I would not be persuaded if the argument against this was that it would be onerous or too costly. The cost of failure in an area such as this would be far greater than the cost of keeping a close eye on progress and making sure that adjustments can be made if they are deemed appropriate.
With those few comments, I am pleased to support the amendment.
Lord Thurlow (CB)
My Lords, as a punishment for the noble Lord, Lord Fox, forgetting my name, I must object to his proposal and support the Government. In fact, four months is not enough. As we are likely to launch this legislation as an Act, which I hope is soon, just as the holiday season bears down upon the country, four months will become three months. There will not be enough momentum, precedent or example to really form a worthwhile review after such a short time. I realise that time is short and that we must not waste any time at all; we must give guidance based on results as quickly as we can to the sector, to the arbitrating bodies and to landlords and tenants. But I think the period proposed is too short.
Lord Grimstone of Boscobel (Con)
My Lords, I rise with some sadness, given that this is the last group. I thought that we were getting into the swing of it this afternoon. I should have hoped for further groups in which noble Lords could have demonstrated their expertise.
Amendment 10 proposes a new clause after Clause 27. I thank the noble Lord, Lord Fox, for his contribution and the noble Baroness, Lady Blake. I am also particularly grateful for the support of the noble Lord, Lord Thurlow.
The Government recognise the importance of appropriately reviewing legislation. I would like to reassure the noble Lord and the noble Baroness that the Bill contains appropriate means of monitoring the arbitration system, which is the essence of the Bill, including the awards made by arbitrators. The period under the Bill for making an application for arbitration is six months, and we anticipate that cases should be resolved as soon as possible thereafter.
The Bill already requires approved arbitration bodies to provide a report to the Secretary of State if requested. This can include details of the progress of arbitrations and the awards made. The Bill also requires arbitrators to publish their awards and reasoning. This will provide transparency and help with consistency of approach. If the need arises, the Secretary of State can also issue updated guidance to arbitrators, for example to clarify or add any points that may arise.
It is neither necessary nor beneficial to require publication of a review within just four months of the Bill being passed. That could slow the arbitration process and the prompt resolution that the whole scheme intends, should parties to arbitration and arbitrators await any findings and any new guidance. I appreciate that the noble Lord and the noble Baroness have proposed this with good intentions, but I ask the noble Lord to withdraw his amendment.
Lord Fox (LD)
Turning the telescope around the other way, the reason for specifying four months was the Government specifying six months in Clause 9(2). It seems perverse to have a review that comes after the process has essentially ended. That is the problem. I acknowledge the point made by the noble Lord, Lord Thurlow—I shall always remember his name; “That’ll learn you”, as they say where I am from—and I accept his point that three to four months is too short to review this. Therefore, six months is too short for the cut-off point. In a strange way, the noble Lord, Lord Thurlow, kind of makes my concern clear. If we are to review this, the review needs to come when changes can be made and when significant numbers of potential future cases are better served by the process. Does the Minister agree?
Lord Grimstone of Boscobel (Con)
My Lords, I think I will stick by my previous comments. I believe that not just the interests of landlords and tenants but those of the country are best served by getting on with this. Even though I respect the points that the noble Lord made, I stick with my previous comments.
Lord Fox (LD)
I thank the Minister for his comments, which I clearly do not agree with. Everybody’s interests are best served by getting on with something as long as what we are getting on with is a good thing. As someone who climbs and rambles, I know that heading off in the wrong direction and keeping walking for a period before starting to assess the direction in which one is walking is not a good idea. What one does when one sets out on a journey is check and check again, and make changes. This amendment would make sure that any trimming that is required to add direction is done in time for it to have a meaningful effect on the outcome of the largest possible number of cases. Having said that three times in three different ways, I beg leave to withdraw the amendment.
“(b) a person other than the tenant who is liable on an indemnity basis for the payment of rent under a business tenancy, and(c) a former tenant who is liable for the payment of rent under a business tenancy.”Member’s explanatory statement
The amendment would secure that references to the tenant include any other persons who are liable under a business tenancy for payment of rent.
“(b) a person other than the tenant who is liable on an indemnity basis for the payment of rent under a business tenancy, and(c) a former tenant who is liable for the payment of rent under a business tenancy.”Member’s explanatory statement
The amendment would secure that references to the tenant include any other persons who are liable under a business tenancy for payment of rent.
Commercial Rent (Coronavirus) Bill
Wednesday 9th March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 116-I Marshalled list for Report - (7 Mar 2022)
“(6) “English business tenancy” means a business tenancy comprising premises in England.(7) “Welsh business tenancy” means a business tenancy comprising premises in Wales.”Member’s explanatory statement
The amendment would define “English business tenancy” and “Welsh business tenancy”.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, the amendments proposed to Clauses 2, 9, 23 and, to some extent, 27 are the result of extensive discussions with Welsh Ministers, who expressed their wish that the delegated powers in the Bill be redrafted to clarify areas of Welsh competence in recognition of the importance of the Bill’s policy to Welsh businesses.
The amendments to Clause 9, regarding extending the period for making a reference to arbitration, clarify that the power to extend the arbitration reference period can be exercised for English business tenancies or for Welsh business tenancies, as well as for both. The amendments to Clause 23 decouple the moratorium period and the period for making a reference to arbitration. The moratorium period will end six months from Royal Assent, unless extended.
New Clause 23A provides that the UK must seek the consent of Welsh Ministers to extend the Bill’s moratorium period for Welsh business tenancies in respect of devolved matters. In relation to Clause 27, which is the power to reapply the Bill to a future period of coronavirus, I have tabled an amendment to enable regulations under this clause to be made just for English business tenancies, or just for Welsh business tenancies, or for both. The amendments to this clause also provide that the UK Government will seek the consent of Welsh Ministers on the use of powers to reapply the Act for Welsh tenancies in response to future periods of coronavirus-related business closures, where the provisions are devolved. In addition, in the event of new coronavirus restrictions in Wales, new Clause 27A has been included to enable Welsh Ministers, concurrently with the Secretary of State, to use the power to reapply the relevant moratorium provisions to Welsh business tenancies. I am pleased to confirm that the Senedd has now voted to support the legislative consent Motion in relation to this.
As noble Lords will be aware, the Delegated Powers and Regulatory Reform Committee published its report on 3 February. Following careful consideration of this report, I have now made several amendments to Clause 27 in order to address issues raised by the committee. I thank the committee for bringing this matter to the attention of the House. Primarily, the amendments limit the breadth of the Secretary of State’s powers to reapply the provisions of the Bill in the future. The amended power would allow for targeted modifications to accommodate new dates and to make adjustments to moratorium provisions to take account of new timeframes. However, it would not permit changes to the operation of the arbitration process or policy. The Secretary of State would retain the ability to make different provision for England and Wales, and to make incidental, supplemental, consequential, saving or transitional provisions. I beg to move.
Lord Fox (LD)
My Lords, it is pleasing to see so many more noble Lords attending this debate than there were in Committee, when there were just four of us—two of whom have subsequently come down with coronavirus. So your Lordships have been warned.
This group of amendments is testimony to the fact that the Minister listened in Committee, and has attended many meetings and taken note. For that, the Minister and the Government should be congratulated and thanked in broad measure. I highlight in particular Amendment 21, which, as the Minister set out, addresses the issues highlighted by the DPRRC. This was a serious issue, and the Minister has effectively addressed it. It is a welcome change and something these Benches were particularly concerned about it, and it was good of the Minister to have taken it on. Also, conversation with the Welsh Government has been extremely successful, and that is borne out by the legislative consent that the Minister and Government have received. Overall, we welcome this group of amendments and think them a very good improvement to the Bill as we now see it.
Lord Lennie (Lab)
My Lords, as the House may have spotted, I am not the noble Baroness, Lady Blake, as she is one of the two noble Lords who have fallen victim to Covid. We all wish her well for a quick recovery.
On this side of the House, we also welcome the Government’s moves, which follow on from representations made by the Welsh Government and the DPRRC. They show that the Government have listened and have acted upon the concerns raised. Perhaps the Minister could confirm in response that the Welsh Government are fully satisfied with these changes too, in which case we too are satisfied.
Lord Lennie
“(2A) The Secretary of State must ensure that bodies approved under subsection (1) have adequate resources and sufficient numbers of arbitrators as are (whether alone or as a member of a panel of arbitrators) required to conduct arbitrations under this Part.”Member’s explanatory statement
This amendment would require the Secretary of State to ensure that the approved arbitration bodies collectively have sufficient capacity, and resourcing, to hear all arbitrations under this Part.
Lord Lennie (Lab)
My Lords, Amendment 2 builds on the debate in Committee. The House will be pleased that I will not repeat all the arguments put forward then, but it is worth saying at the outset that this amendment is in response to severe pressures that businesses, tenants and landlords are under following an extremely difficult trading winter, plus the economic pressures of national insurance increases, energy price rises and escalated inflation. The clock is ticking loudly.
Arbitrators will be dealing with the cases that could not be resolved through voluntary measures between the parties. These will include in the main the most complex, as well as those where a failure to act was in the hope that debt would just disappear. As a point of interest, it would be beneficial to know from which sectors these outstanding cases come—not geographically, but from which sectors of economic activity. Perhaps the Minister could respond.
In Committee, the Minister—whom I paraphrase—told us not to worry about the arbitration service and that all would be well and sorted out in due course. Can he tell us what his optimism is based on? Have the Government made an assessment about the demands that will be made on the service, beyond simply the number of outstanding cases? If so, can we see the evidence of that assessment? Also in Committee, the Minister said that the Government supported the market-based approach in which arbitration firms would move things around to get over the expected spike in demand. The Minister said that he had been reassured by the arbitration firms of their ability to cope. But, without a detailed assessment or understanding of both the volume and complexity of cases, coupled with a change in the nature of the work that arbitrators will be asked to carry out—which the noble Lord, Lord Fox, will introduce in a later amendment, on behalf of the noble Earl, Lord Lytton—this would appear to be wishful thinking.
If in reality there is either an insufficient number of arbitrators, or too many complex cases, or both, this reliance of the market-based approach may be something the Government come to regret. So will they keep the progress in clearing the backlog of cases under review and report back to Parliament from time to time? I have no doubt about the quality and excellence of the arbitration service itself across the whole of the UK, but we are concerned that the Government have not undertaken an assessment of the numbers and the resources available in order to be fully satisfied that all arbitrations can be conducted in good time.
Amendment 15 proposes that, when the Government issue guidance to arbitrators aimed at enabling better outcomes, Parliament should be informed. Some concern has been expressed, in particular by small businesses, that the draft guidance produced may not be fully appropriate to the arbitration process. This is turn raises the prospect that arbitrators’ decisions are likely to be distorted. So Amendment 15 adds a layer to safeguard against such an occurrence by asking the Government to bring statutory guidance to Parliament before it is issued. In both the Commons and in Committee we raised the need for a review of the Bill’s provisions to ensure that the process is being applied transparently, fairly and consistently. While we may not have convinced the Government to include a specific review mechanism, can the Minister assure the House that the operation of the Bill will be carefully monitored?
Finally, on the many thorny questions of viability, can the Minister tell us what engagement is being undertaken with stakeholders to stress test the Government’s draft guidance on this to make sure that it is fit for purpose? I look forward to the noble Lord’s response.
Lord Fox (LD)
My Lords, I will speak to Amendments 2 and 15 in my name. Amendment 2 is important because it is important to have the arbitrators in place to deliver this service. The purpose of Amendment 15 is to probe the guidance notes, because in Committee that guidance was out for consultation. It is important to get a chance to air some of the issues thrown up from it and to get a sense from the Minister of where we are and when your Lordships’ House will see the final draft—I hesitate to use the phrase “final draft”, because I hope he can confirm that it is a live document and will develop over time alongside experience of this process.
The noble Lord talked about stress testing. It would be helpful if the Minister, during the process of monitoring the guidelines, talked to those who have been involved in arbitration about their experience so that they can be improved over time. Can he confirm that he will?
The Government’s instinct to try to keep this simple is correct, but sometimes simplicity can leave ambiguity. I think some of that has come through in the responses they may well have received. One way of removing that ambiguity is better use of templates, which is one of the responses I have received from people on this. Can the guidelines be better used to genuinely short-circuit the process and therefore reduce costs for the proponents’ way?
A second real issue is the definition of “viability”. We had a debate on that at Second Reading and in Committee; I do not propose to return to it, but there are issues around viability that concern businesses, particularly seasonal ones. There is scope within the guidelines—I have been given this advice by some seasonal businesses—to better define the role of seasonality when looking at the viability of these businesses. I would appreciate the Minister’s thoughts on those issues.
Finally, there is an underlying suspicion from some tenants that large-scale landlords, some of whom have experience in previous types of dispute, will game the system and use their financial muscle to take advantage. They fear that these well-resourced landlords will go for the most expensive options, bid up the costs and put the process beyond the means of small independent traders. Will the Minister ensure that the arbitrators are vigilant in this regard? I would be a bit hesitant here, because there is a potential conflict of interest for those arbitrators—the bigger the job, the larger the potential fee. We then come to important issues around fees. The Minister needs to set very clear guidelines to the arbitrators on that issue, such that they are not bidding up the process or creating the opportunity for big companies to flex their financial muscle.
Lord Grimstone of Boscobel (Con)
My Lords, I am grateful to the noble Baroness, Lady Blake of Leeds—originally—and the noble Lord, Lord Fox, for raising their concerns about ensuring that arbitration bodies have adequate arbitrator capacity and administrative capability. I am sorry that the noble Baroness cannot join us today and wish her a speedy recovery, although of course I welcome the noble Lord, Lord Lennie, who is participating in her place. I agree that a number of crucial points have been made in this short debate. The need for arbitrator capacity has been a key consideration in designing the scheme.
The Bill adopts a market-based approach. This means that several arbitration bodies will be approved and deemed suitable to administer the scheme, a point which I will return to in a moment. I believe this is the best way to ensure that we maximise capacity, because arbitration bodies will be able to use their intimate knowledge of matching arbitrator skills and experience to cases. This Bill also helps maximise capacity by empowering approved arbitration bodies to design and optimise their internal workflows to make best use of their own and their arbitrators’ capacity.
The Government designed an approvals process which specifically asked arbitration bodies to evidence their capacity. The deadline for applying has now passed and an internal sifting process is under way. As the sift is ongoing, I cannot comment on the details yet, but I can state that 12 arbitration bodies have applied. This is a very pleasing indicator of the interest being shown in the scheme. To an extent, it shows that the market mechanism looks to be working. Given the breadth and content of the applications, I am confident that the approach we have taken quite rightly empowers arbitration bodies to apply their experience and expertise.
The noble Lord, Lord Lennie, asked about the number of cases. In light of recent intelligence from the mediation policy in New South Wales, Australia, we have adjusted our current estimate of the expected number of arbitration cases. It is important to note that there is still some uncertainty around these estimates, but in the central case we now estimate 2,500 arbitration cases in England and Wales. This is a significant reduction from the previous estimate of 7,500 cases in the central case. On that basis, if we were to discuss this Bill for the next few months, we might have no cases left at all. The noble Lord also asked about the sectors involved. I can confirm that closed sectors included retail, hospitality, personal care, leisure and the arts, and some others, but our evidence suggests that most outstanding rent debt falls within these sectors.
The reduction in estimated cases is a positive sign for both the scheme and the capacity of the arbitration market. As I have stated, I hope this number will reduce further as landlords and tenants continue negotiations. My officials are engaging extensively with arbitration bodies to ensure that we offer as much support as possible in helping them deliver this scheme. I hope that reassures noble Lords that we are engaging with the arbitration bodies on capacity and therefore request that this amendment be withdrawn.
Turning to Amendment 15, I am grateful to the noble Lord and the noble Baroness for raising the matter of laying statutory guidance before Parliament. There is no doubt that the statutory guidance will be very important to arbitrators’ performance of their role. The Government take this very seriously. We want to ensure that the guidance is genuinely useful to and used by arbitrators. That is why we have already published a draft of the guidance to allow for stakeholder input. This draft has been very well received by stakeholders—in particular the guidance on the assessment of the tenant’s viability, in answer to the noble Lord, Lord Lennie. My officials are having ongoing discussions with stakeholders which will inform the final version. This will take into account the comments made by the noble Lord, Lord Fox. We expect the final guidance to be published as soon as possible after Royal Assent.
We are committed to ensuring that the guidance is accessible to all. That is why the final version will also be published on GOV.UK. I am pleased to confirm that we will also write to all Peers to share a copy of the guidance when published and place a copy of it in the Libraries of both Houses. I assure the noble Lord, Lord Fox, that if experience shows that the guidance needs to be updated in any respect as the scheme unfolds, we will do so and make sure that any such changes are publicised.
I hope that noble Lords are reassured by this. We plan to make the guidance widely available and share it with your Lordships. I hope that, on this basis, the noble Lord will feel able to withdraw his amendment.
Lord Lennie (Lab)
My Lords, I thank the Minister for his detailed response to the contributions and questions raised. It is good to know that only 2,500 cases remain. He is quite right that the longer we talk, the fewer cases will be left. I am not entirely convinced that this is proof that the market-based approach is working. It is something else, probably about the voluntarily nature of agreements entered into by people under the threat of the arbitration process. Nevertheless, it is a positive sign.
As for the statutory guidance, we welcome being informed of updates, but our preference would probably have been to have it approved, although that is neither here nor there. I beg leave to withdraw the amendment.
Member’s explanatory statement
This amendment and the others in the name of the Earl of Lytton to Clause 8 are to avoid any ambiguity as to the role of the appointing body and independence of the arbitrator pursuant to the Arbitration Act 1996, to prevent unilateral objections that might delay or frustrate the process and to rely instead on the parties’ existing rights under the Arbitration Act 1996 jointly to remove an arbitrator.
Lord Fox (LD)
My Lords, I rise to speak on behalf of the noble Earl, Earl Lytton, who, as previously advertised, is the second member of the “Covid 2” in this team. His absence is disappointing for two reasons. First, he is not here to make these speeches and I have to do so on his behalf, and secondly, his wisdom on the issue of property is second to few in your Lordships’ House. The nature of these amendments points to the direction of the advice that he would have given your Lordships’ House had he been here, and I will do my best to represent that. I am given to understand that the amendments that the noble Earl tabled are supported by the RICS, which focuses their purpose.
I will speak to them in groups. In the Clause 8 amendments, the noble Earl’s point is that the appointing body that oversees the function should not carry out more than a general monitoring of the administrative good order of the process. The reason behind the noble Earl’s point is that he is anxious to ensure that the terms of Arbitration Act 1996 are not circumvented, so perhaps the Minister can set the Bill in this context with respect to the Act.
At the heart of the Clause 10 amendments is the expectation that the appointing bodies do not materially alter their screening and selection processes. The noble Earl’s point is that on potential conflicts of interest, they are almost wholly reliant on self-disclosure by potential appointees, so they would frequently have no means of checking the responses for accuracy. I would welcome the Minister’s view on this.
The purpose of the Clause 19 and Clause 20 amendments is to make it permissible in a complex case, or cases, for the appointing body to demand from the parties that a clear statement of the issues and scope of evidence be placed before the arbitrator. Any fee specified in advance should be able to rely on the statement, but also on providing a broad estimate of the applicable arbitrator time and rate, where a fixed fee is impractical. I think what the noble Earl is driving at is that the arbitrators should not be signing a blank cheque for the work they are going to do; they deserve to have a scope to understand what it is they will be arbitrating.
Those are the groupings as the noble Earl set out. For my part, I hope to hear how the Minister and his department will balance these important points from the noble Earl, Lord Lytton, and the RICS, with the need to keep things as simple and cost-effective as possible. I think this is possible but I want to hear how the Government will absorb these two issues. I beg to move Amendment 3.
Lord Lennie (Lab)
The noble Lord, Lord Fox, raises the central concerns of the struck-ill noble Earl, Lord Lytton, about the expectations of arbitrators. I would add that he seemed to suggest in Committee that the role of arbitrators in this legislation is inconsistent with the expectation of arbitrators in the Arbitration Act—that is, they decide either one way or the other between two competing cases, rather than trying to filter between the cases to find some remedy between the two.
Lord Grimstone of Boscobel (Con)
My Lords, I apologise—I was caught short by the speed with which we are moving through these amendments. Before I respond to these points, I thank the noble Earl, Lord Lytton, for the amendments he tabled. I think everybody who heard him in Committee was impressed by his erudition. I am sorry he is not able to join us to debate these points, but on behalf of the House I thank the noble Lord, Lord Fox, for stepping into the breach and for his impressive grasp of the technical matters underlying these amendments.
I start by saying that I am fully aware of the concerns of arbitration bodies seeking approval under the Bill and my officials have been in continual contact with them to ensure that their views are registered and dealt with appropriately.
The Bill differs in some aspects from the Arbitration Act 1996, and provides that approved arbitration bodies have oversight over arbitrators where they have appointed them. In answer to the noble Earl, Lord Lytton, this was deliberate, and it gives certainty to landlords and tenants that arbitration will be managed efficiently and any issues with the process dealt with expeditiously. I can assure noble Lords that the oversight function is not intended to be onerous and is primarily administrative to ensure that the process runs smoothly. We do not expect bodies to continually monitor proceedings, but only step in where a party has a legitimate complaint or new information comes to light, raising a concern. I hope this reassures the noble Lord, Lord Fox.
Under the Bill, arbitration bodies can decide on unilateral removal requests, and this was also deliberate to avoid adding to pressure on the court system. The bodies should apply the same principles in case law as the court, including that there is a high bar to removing an arbitrator, and the parties should raise any concerns promptly. Frivolous, vexatious or unsubstantiated complaints should be quickly dismissed. Complaints of any substance should be rare, given the rigorous pre-appointment checks that bodies will doubtless carry out. I am pleased to clarify the point raised by the noble Earl in Committee: it is open to the approved arbitration bodies to charge a fee for dealing with a removal application. The intention is that this may disincentivise frivolous or vexatious complaints. In addition, the arbitrator can require an obstructive party to pay a greater share of the arbitration fees. We will include this clarification in the guidance to which I referred earlier.
I appreciate that there is concern about the extent to which arbitration bodies have immunity in respect of their functions. This is an important point that has been raised; I am considering it and will return to this issue at Third Reading.
Lord Fox (LD)
I appreciate that latter point, and the conflict of interest is a concerning issue, particularly around how arbitrators are able either to sign off on that or not be required to do so.
Lord Grimstone of Boscobel (Con)
The noble Lord makes a good point on that, and I hope that all this provides reassurance to the noble Lord, Lord Fox, in his proxy role regarding Amendments 3, 4 and 5 and that he will now not press them.
Turning to Amendments 8 and 9, the Bill’s arbitration scheme is for parties that cannot reach agreement. It should not apply if the protected rent debt is covered by a company or individual voluntary arrangement, or by certain restructuring plans and schemes under the Companies Act 2006. The Bill therefore does not allow a reference to arbitration where such an arrangement has been approved. If, when the Bill scheme is open, such an arrangement has been proposed but not decided, the Bill seeks to preserve the parties’ positions. This is why a party may apply for arbitration but an arbitrator may not be appointed while the decision on the arrangement is pending. If the proposed arrangement is then approved, arbitration should not be available, so, in that instance, the Bill prevents an arbitrator being appointed.
This is important, but it should not be burdensome for approved arbitration bodies. We will set out in guidance a clear and quick process based on tenant disclosure to check whether there is an approved or proposed arrangement to limit administrative burden on the bodies. However, we should not use limited arbitral capacity to determine this. I hope that I have explained convincingly why Amendments 8 and 9 are not necessary or appropriate.
Finally, I thank the noble Lord for raising the important issue of arbitration fees. I turn first to Amendment 10. A cap on fees differing with the complexity of the dispute may seem helpful; however, complexity is subjective and difficult to define and measure. It would therefore be hard to monitor adherence to such a cap. Landlords and tenants may worry that their case would be considered complex, resulting in higher fees, which may discourage SMEs from applying. Of course, a key tenet of this Bill is that this should be an inclusive process and open to all. I hope that explains, for reasons of practicality, why I cannot accept the amendment from the noble Earl and noble Lord on the fee cap.
Amendments 11, 13 and 14 in effect remove the requirements for advance payments of arbitrators’ fees and expenses and oral hearing fees. However, it is fundamental that the parties know in advance how much arbitration will cost to avoid deterring them from using the scheme. A key gain—another key tenet—is that this scheme is intended to be fast and low cost. The arbitration mechanism is focused and based on the parties’ formal proposals and supporting evidence. Oral hearings should concern those proposals and evidence and should not require lengthy cross-examination or experts. Consequently, costs should be predictable.
Requiring fees to be paid in advance prevents a party frustrating the process by refusing to pay. It also avoids arbitration bodies having to take action to recover unpaid fees. Arbitration bodies should be reassured that it is perfectly acceptable under the Bill for them to set a higher fee for large-scale disputes, and vice versa. For these reasons, I hope that the noble Lord will understand that I must stick to the position that fees should be paid in advance.
Finally, I turn to Amendment 12. The scheme must of course be accessible to SMEs, as I have previously said, but the general rule of splitting approved arbitration body fees and expenses 50:50 is important. That even split means that neither side is incentivised to make the process more complex or lengthier than it needs to be. I believe that we should be wary of interfering with this. Of course, the exception is where a party has behaved obstructively, in which case the arbitrator can require them to pay more than 50% because of their conduct. As I have mentioned, it is perfectly acceptable for approved arbitration bodies to set fees payable in advance that differ depending on the size of the parties involved. I hope that all provides a satisfactory explanation to the noble Lord, Lord Fox. I thank him and of course the noble Earl, Lord Lytton, for their close attention to these matters, and I hope that he will not press these amendments.
Lord Fox (LD)
My Lords, I thank the Minister for his comprehensive answer on these amendments. I am not sure how much cheer the noble Earl will be getting from the answer, but he will I hope be able to respond on his own account at Third Reading.
For my own part, I think the Minister’s response that neither side is incentivised to increase the costs is a bit—if he does not mind me saying so—naïve, because that is exactly what has been happening where the big operators have flexed their muscle to, in a sense, push the smaller operators into a corner. So I do not agree with that point, and it is perhaps something that the Minister could reconsider. With that, I beg leave to withdraw the amendment.
(a) English business tenancies,(b) Welsh business tenancies, or(c) English business tenancies and Welsh business tenancies.”Member’s explanatory statement
The amendment would clarify that the power to extend the period for making references to arbitration can be exercised for English business tenancies or for Welsh business tenancies only, as well as for both.
Member’s explanatory statement
The amendment would omit a definition that is redundant if Lord Grimstone’s proposed amendment to Clause 23 at page 14, line 27 is made.
Member’s explanatory statement
The amendment would mean that the moratorium period is no longer defined directly by reference to the period under Clause 9(2) for making of references to arbitration. Instead the period under Clause 23(2)(b)(i) will end 6 months from Royal Assent, unless extended.
“(2A) Subsection (2) is subject to any extension of the period mentioned in paragraph (b)(i) that—(a) is made by or by virtue of section (Alteration of moratorium period), and(b) has effect in relation to the protected rent debt.”Member’s explanatory statement
The amendment would acknowledge that the period ending as specified in Clause 23(2)(b)(i) may be extended as provided for in the new Clause proposed by another amendment in the name of Lord Grimstone.
“Alteration of moratorium period
(1) In this section “extension regulations” means regulations under section 9(3) extending the period allowed by section 9(2) for making references to arbitration.(2) Where extension regulations made by virtue of section 9(3)(a) or (c) extend that period in the case of English business tenancies, the period specified in section 23(2)(b)(i), so far as it applies in the case of a protected rent debt under an English business tenancy, is extended for the same period of time.(3) Subsection (4) below applies where extension regulations made by virtue of section 9(3)(b) or (c) extend that period in the case of Welsh business tenancies.(4) The Secretary of State may by regulations made by statutory instrument extend the period specified in section 23(2)(b)(i), so far as it applies in the case of a protected rent debt under a Welsh business tenancy, for the same period of time.(5) Regulations under subsection (4) must provide for the extension referred to in that subsection—(a) to have effect for the purposes of this Part including the purposes of Schedule 2, or(b) to have effect for the purposes of this Part other than the purposes of Schedule 2.(6) The power to make the provision referred to in subsection (5)(a) is exercisable only with the consent of the Welsh Ministers to the extension having effect for the purposes of Schedule 2 other than the purposes of paragraph 3(6) and (7).(7) A statutory instrument containing regulations under subsection (4) is subject to annulment in pursuance of a resolution of either House of Parliament.”Member’s explanatory statement
The amendment deals with the effect of use of the Clause 9(3) power on the moratorium period under Clause 23(2). For debts under Welsh business tenancies the effect will depend on regulations, which would require the consent of the Welsh Ministers if a change in the moratorium period affects Schedule 2 (apart from paragraph 3(6) and (7), dealing with reserved matters).
“(1A) Regulations under this section may—(a) be made so as to apply in relation to—(i) English business tenancies,(ii) Welsh business tenancies, or(iii) English business tenancies and Welsh business tenancies;(b) exclude the provisions mentioned in subsection (7B)(a) to (c) from the provisions being re-applied in relation to Welsh business tenancies.”Member’s explanatory statement
The amendment would enable regulations under Clause 27 to be made just for English business tenancies or just for Welsh business tenancies (as well as for both) and also to exclude (in the case of Welsh business tenancies) provisions of the Act which deal with devolved matters in Wales.
“(7) Regulations under this section may—”Member’s explanatory statement
The amendment would omit the current specific power to exclude any of the provisions of the Act from applying again by virtue of regulations under Clause 27.
Member’s explanatory statement
The amendment would limit the power to modify the provisions of the Bill being re-applied to modifications necessary for the re-applied provisions of the Act to work in the circumstances in which the power is being used.
Member’s explanatory statement
The amendment would limit subsection (7)(c) to making different provision for England and for Wales.
“(7A) For the purposes of subsection (7)(b)—(a) “modifications” means omissions, additions or variations, and(b) modifications are “necessary” if they appear to the Secretary of State to be necessary for the provisions being re-applied to operate correctly in relation to business tenancies adversely affected by the closure requirements in question.(7B) The power under this section is exercisable only with the consent of the Welsh Ministers so far as it relates to the re-application, in relation to Welsh business tenancies, of—(a) Schedule 2 apart from paragraph 3(6) and (7),(b) section 23 so far as relating to Schedule 2 apart from paragraph 3(6) and (7), and(c) Part 1 and this Part, so far as relating to the provision mentioned in paragraphs (a) and (b).”Member’s explanatory statement
The amendment would require the consent of the Welsh Ministers to regulations re-applying the moratorium provisions of Part 3, with the exception of paragraph 3(6) and (7) of Schedule 2 (the subject-matter of which is reserved under Welsh devolution legislation).
Member’s explanatory statement
This is a drafting amendment that would secure consistency of expression in Clause 27.
“Concurrent power for Welsh Ministers to apply moratorium provisions again
(1) The Welsh Ministers may exercise the power conferred by section 27, concurrently with the Secretary of State, so far as it relates to the re-application, in relation to Welsh business tenancies, of—(a) Schedule 2 apart from paragraph 3(6) and (7),(b) section 23 so far as relating to Schedule 2 apart from paragraph 3(6) and (7), and(c) Part 1 and this Part, so far as relating to the provision mentioned in paragraphs (a) and (b).(2) Section 27 has effect in relation to regulations made by the Welsh Ministers by virtue of this section as if—(a) references to the Secretary of State were to the Welsh Ministers,(b) subsection (1A)(a)(i) and (iii) and (b) were omitted,(c) in subsection (7)—(i) the references in paragraph (b) to provisions of this Act were references to provisions mentioned in subsection (1)(a) to (c) above, and(ii) the reference in paragraph (d) to an Act of Parliament included a reference to an Act or Measure of Senedd Cymru,(d) subsection (7B) were omitted, and(e) in subsection (8)(b), for “each House of Parliament” there were substituted “Senedd Cymru”.(3) In Schedule 7B to the Government of Wales Act 2006 (general restrictions on legislative competence of Senedd Cymru), in paragraph 11(6)(b) (exceptions to restrictions relating to Ministers of the Crown)—(a) omit the “or” at the end of paragraph (vii), and(b) after paragraph (viii) insert “; or(ix) section 27 of the Commercial Rent (Coronavirus) Act 2022.””Member’s explanatory statement
The amendment would insert a new Clause enabling the Welsh Ministers, concurrently with the Secretary of State, to use the section 27 power to apply again the moratorium provisions specified in subsection (1)(a) to (c) of the new clause in relation to Welsh business tenancies affected by new coronavirus restrictions in Wales.
Commercial Rent (Coronavirus) Bill
Tuesday 15th March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 128-I Amendment for Third Reading - (14 Mar 2022)
Lord Ashton of Hyde (Con)
My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Commercial Rent (Coronavirus) Bill, has consented to place Her interest, so far as it is affected by the Bill, at the disposal of Parliament, for the purposes of the Bill.
Schedule 1: Modifications of the Arbitration Act 1996 in relation to arbitrations under this Act
Amendment 1
“(g) in section 74 (immunity of arbitral institutions)—(i) in subsection (1), for “appoint or nominate” there were substituted “appoint, nominate or remove”;(ii) in subsection (2), for “appointed or nominated”, in both places, there were substituted “appointed, nominated or removed”.” Member’s explanatory statement
The amendment would ensure that section 74 of the Arbitration Act (which prevents an arbitration body from incurring liability) applies to the function under the Bill of removing an arbitrator on the same basis as it currently applies to the function of appointing an arbitrator.
The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)
My Lords, it is a pleasure to lead this Bill on Third Reading. As we are all aware, this legislation supports the Government’s important aim of mitigating the impacts of the pandemic. The Bill does this by protecting certain rent debt and establishing an arbitration scheme, which has been designed to balance the impact on both landlords and tenants. It has therefore been gratifying to see the level of support for the Bill across the House.
Turning first to the government amendment, I am grateful to the noble Earl, Lord Lytton, and the RICS for sharing their experience and considering the practical applications of the Bill’s provisions. I said on Report that I would consider and return to a point about the extent to which arbitration bodies may have immunity. This technical amendment follows that consideration.
Section 74 of the Arbitration Act essentially protects an arbitration body from incurring liability in relation to a function of appointing an arbitrator. Amendment 1 would provide that Section 74 also applies where approved arbitration bodies exercise their function of removal of arbitrators under the grounds listed in the Bill. The bodies will thereby have immunity for things done or omitted in the discharge of this function unless they act in bad faith. I beg to move.
Lord Fox (LD)
My Lords, this amendment is testament to the power of remote control over this Bill by the noble Earl, Lord Lytton, and we on this Bench welcome it. I am interested that the Minister was able to announce on Report that a large number of arbitration organisations had already been recruited to take part in this important activity. To that end, I am surprised that they did so without some assurance of immunity as now offered by this amendment; I would be interested to hear what the expectations of those organisations were, given that it is only now that that immunity is emerging. With that small question, we will support the amendment.
Lord Grimstone of Boscobel (Con)
My Lords, in answer to the noble Lord, Lord Fox, what I said on Report was that 12 bodies had indicated an interest in applying for this. The process of approval is under way and, no doubt, this clarification will come to light and be welcomed by them during that process.
Lord Grimstone of Boscobel (Con)
My Lords, I start by thanking noble Lords for their thorough engagement throughout the Bill’s passage through your Lordships’ House. As ever, the erudite contributions of your Lordships have given rise to constructive and robust discussion of the Bill and it has been pleasing to see the consensus that we have reached as a result. In particular, I thank the noble Baroness, Lady Blake of Leeds, in absentia, supported so admirably by the noble Lord, Lord Lennie, as well as the noble Lord, Lord Fox, as ever, for his support for and scrutiny of the Bill. It has been a pleasure working with them on this Bill following our previous work on the Professional Qualifications Bill. I am also grateful to the noble Earl, Lord Lytton, for his expertise on arbitration. Furthermore, I give thanks to the noble Lords, Lord Lennie, Lord Shipley, Lord Thurlow and Lord Mendelsohn, and my noble friend Lord Hunt of Wirral for their interest in the Bill.
I also thank the noble Lord, Lord Brennan, QC, for his consideration of the Bill. The noble Lord wrote to me recently to discuss the focused eligibility of the scheme, on which I will take a moment to respond. Significant thought has been given to the eligibility of the scheme. It is important to remember that the capacity of the arbitral market is limited and, as such, the scheme that this Bill establishes must be targeted appropriately.
Businesses that were mandated to close were among those hardest hit by the pandemic. Some of these businesses, such as nightclubs, were required to close for over 18 months. Evidence suggests that businesses in the sectors that were mandated to close are the least likely to have reached agreements on outstanding rent. In light of this, we consider it a proportionate requirement that, in order to access the scheme, a business must have been mandated to close its premises, or businesses carried on there, in part or in whole.
I am entirely sympathetic to businesses that were not required to close but were still affected by the pandemic. Alongside the Bill’s introduction in the other place, the Government published a revised version of a code of practice for the commercial property sector. This code of practice can be used by any business to help it resolve disputes about unpaid commercial rent, regardless of the business’s eligibility to access the arbitration scheme. I hope that this provides some clarity to the noble Lord regarding the purposefully focused eligibility of the scheme.
I recognise that the Government have made several changes to the Bill during its passage through your Lordships’ House. I am pleased that the changes have been well received, which is a testament to our shared desire to ensure that this Bill is as clearly drafted and fit for purpose as it can be.
Many of these amendments have been clarificatory or technical—for example, in confirming that an obligation to close either premises or businesses is regarded as a closure requirement—as well as expressly setting out the effect of an arbitral award, including how it affects the liability of the tenant and of a guarantor or former tenant. Minor amendments were also made to Schedules 2 and 3, to clarify the application of certain provisions to former tenants and guarantors, including where an indemnity was given.
However, we have also made more significant amendments, particularly following our extensive interaction with the Welsh Government and in response to the DPRRC’s report. I thank the Welsh Government and officials for their positive and extended engagement. I am extremely pleased that the Welsh Government have felt content to recommend legislative consent and that the Senedd has agreed a legislative consent Motion.
Furthermore, I thank the Delegated Powers and Regulatory Reform Committee for scrutinising the Bill and for drawing the House’s attention to Clause 28—previously Clause 27—on reapplying the Bill. We have amended the clause to ensure that its power is appropriately limited, following the committee’s report. I am grateful for the support which these amendments have received. I am also grateful to the Royal Institute of Chartered Surveyors and to the noble Earl, Lord Lytton, for raising the immunity of arbitration bodies, which prompted the amendment we brought forward today.
I also thank the stakeholders who will be most impacted by the Bill. These include arbitration bodies, and tenant and landlord trade associations. I emphasise, as I have before, that balance, inclusivity and ease of access are some of the core features of this Bill. The Government have engaged with these stakeholders at great length, including at several round tables which I held myself. They have raised relevant concerns and issues, allowing us to mould this legislation and the guidance which my officials are working on—and that we have discussed in previous debates—to make it as useful as possible. As such, I am extremely grateful for their expert input.
I am also grateful to the Bill policy and legal team which has developed this legislation. This includes Carl Creswell, Charles McCall, Jessica Barnaby, Hamza Shoaib, Radhika Sundaram, Matthew Beese, Geraldine Haden, Jane Chelliah-Manning, Justine Antill, Sarah Machen, Louise Dobrin, Simon Burke, Jahan Meeran, Rachel Campbell, Rebecca Denham, Elaine Anderson, Davy Cowie and Martin Gunther. This is a most impressive team.
I thank my private secretary, Ben Kerindi, for organising and managing me—no easy task. I thank the Leader of the House, the Whips and the Office of Parliamentary Counsel, as well as the clerks. Finally, I thank my Whip, my noble friend Lady Bloomfield of Hinton Waldrist.
Lord Lennie (Lab)
My Lords, I thank the Minister for his customary courtesy and thoroughness in handling this somewhat uncontentious Bill. In fact, the Bill has been so successful that the hundreds of thousands of cases which were presumed to require arbitration are now down to either the thousands or the hundreds. They are certainly a reduced number and that is a credit to the Bill.
I place on record my appreciation for the contributions of the “Covid 2”—namely my noble friend Lady Blake and the noble Earl, Lord Lytton—who both provided detailed research, experience and commitment during the passage of the Bill, latterly from afar.
Finally, I thank the noble Lord, Lord Fox, in particular for his detailed understanding of the complexity of the Bill. I also thank the Bill team for their work and efforts in getting this Bill in shape. While we still do not know what the term “viable” means and whether there will be a sufficiency to arbitrate, time will tell—time which I have now run out of.
Lord Fox (LD)
My Lords, this has been a short process, but an interesting and important Bill. It is important for those businesses which found their entire business model cancelled by something over which they had no control. It is important that we find a way for those businesses to secure their future by sorting out the past. I think the Minister would agree with me that the overriding principle of this Bill has been to ring-fence the debt and then, through an arbitration process, share in the impact of that debt. I am pleased to see that the Minister is nodding as I say that.
The Minister has been sensitive to the advice he has got, and I am very pleased that the Government were able to agree with the Welsh Government on how this Bill would apply in Wales.
There was a period at Report when the number of Bill officials outnumbered the number of Peers two to one. Having heard the list that the Minister has just totted off, I can see that not all of them were there even then—but thanks to the Bill team for the hard work that it put in, and thanks to the Minister and the noble Baroness, Lady Bloomfield, as well as the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. Because of Covid and dentists, we found ourselves depleted several times during this process, but I also thank my noble friend Lord Shipley—and, back in the Whips’ Office, keeping the legislative process on track, Sarah Pughe.
Lord Grimstone of Boscobel (Con)
My Lords, I thank noble Lords for their generous input on the Bill throughout its passage through your Lordships’ House. It has been a pleasure to lead on a Bill that has seen such wide-ranging support alongside rightful close inspection. I beg to move.
Commercial Rent (Coronavirus) Bill
Wednesday 23rd March 2022
(2 years, 8 months ago)
Commons ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 128-I Amendment for Third Reading - (14 Mar 2022)
Mr Deputy Speaker (Mr Nigel Evans)
Financial privilege is not engaged by any of the Lords amendments.
Clause 2
“Rent” and “business tenancy”
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move, That this House agrees with Lords amendment 1.
Paul Scully
Before I speak to the Lords amendments, I thank the shadow Ministers—the hon. Members for Feltham and Heston (Seema Malhotra) and for Brentford and Isleworth (Ruth Cadbury)—for their constructive and positive engagement during the Bill’s passage through the House. I have been pleased with the support for the Bill across both Houses. The Government made several amendments in the other place to ensure that the Bill is as useful as it can be. To that end, I believe that Members across this House will support the amendments.
I will begin with the Lords amendments that were introduced following extensive engagement with the Welsh Government; I am grateful for their positive and thoughtful discussions about the Bill. Lords amendments 1, 3, 4, 6 to 8, 10, 15 and 17 were introduced to allow Welsh Ministers to have rightful control over devolved matters.
Lords amendment 1 defines Welsh and English business tenancies to allow the Bill to distinguish between business tenancies in later provisions.
Lords amendment 3 clarifies that the power to extend the time limit for making a reference to arbitration could be exercised separately for English or Welsh business tenancies, as well as for both.
Lords amendment 4 removes a definition that is redundant due to Lords amendment 6 to clause 23.
Lords amendments 6 and 7 decouple the moratorium period from the period for making a reference to arbitration. They provide that the moratorium period will end six months from Royal Assent unless extended.
Lords amendment 8 inserts a new clause that means that the consent of Welsh Ministers would be needed to extend the moratorium period for Welsh businesses in respect of devolved matters.
On the power in clause 28—which was previously clause 27—to reapply the Act, Lords amendment 10 enables regulations under the clause to be made just for English or Welsh business tenancies, as well as for both.
Lords amendment 15 requires the consent of Welsh Ministers to exercise the power to reapply devolved provisions in relation to Welsh business tenancies.
Lords amendment 17 inserts a new clause that provides that Welsh Ministers can use the power in clause 28 concurrently with the Secretary of State insofar as it relates to the reapplication, in respect of Welsh business tenancies, of devolved provisions—that is, certain moratorium provisions.
Following those amendments, I am pleased to say that the Senedd has agreed a legislative consent motion, for which I thank them wholeheartedly.
Separately, I thank the Delegated Powers and Regulatory Reform Committee for its consideration of the Bill. The Committee raised concerns about clause 28, which, as I said, was previously clause 27. The clause provides that the Act can be reapplied if there are further closure requirements due to coronavirus.
The Committee’s concerns were about the breadth of the power and the potential for significant alterations to be made for a reapplication. In response, Lords amendments 12 to 16 were introduced to limit the power’s breadth. As a result, the power would still allow for targeted modifications in order to accommodate new dates and make adjustments to moratorium provisions to take account of new timeframes. However, the amended power could not be used to change the operation of the arbitration process or policy.
I am sure that Members will agree that the Committee’s points are important and will be reassured by the appropriate limitations.
Lords amendment 11 ensures that the power can be used in respect of closure requirements imposed after the protected period set out in the Bill, whether that is before or after the Bill is enacted and whether or not the closure requirement has ended when regulations are made. It ensures that the power will be clear and robust for any new waves of coronavirus. Along with Lords amendment 9, it also ensures that the language of clause 27 is consistent with that of clause 4.
We have continued to listen to stakeholder concerns. When the Bill was in the other place, the Royal Institution of Chartered Surveyors gave useful feedback relating to the exercise of the arbitration bodies’ functions to remove arbitrators on the grounds provided for in the Bill. The Arbitration Act 1996 gives arbitration bodies immunity from liability in relation to the function of appointing arbitrators; arbitration bodies were concerned that under the Bill they did not have explicit immunity from liability in relation to the function of removing them. In response, Lords amendment 18 clarifies that approved arbitration bodies have immunity from incurring liability for anything done in exercise of the function of removing arbitrators under the Bill, unless the act is shown to be committed in bad faith.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I thank the Minister for the chance to raise issues with him earlier. I also thank colleagues in this House and the other place, as well as staff and all those who gave evidence to the Public Bill Committee.
As the Opposition have laid out here and in the other place, Labour has consistently recognised the need for a fair arbitration process to deal with the significant commercial rent arrears that have accrued during the pandemic. Our amendments were intended to strengthen and clarify the legislation, so that the new regime can be effective, accessible and affordable, and can fairly balance the interests of landlords and tenants.
Throughout the Bill’s passage, we have been clear that no otherwise viable business should face an overwhelming burden as a result of rent arrears that threaten its future. Likewise, commercial landlords must have access to clear mechanisms for recouping appropriate levels of arrears. The guiding principles in the process must ultimately be fairness for landlords and tenants alike, and the long-term interests of British businesses and jobs. I pay tribute to the landlords and tenants who have not waited for the Bill to make it to the statute book, but have used the time to work together in good faith in order to come to an agreement.
We should be clear that commercial rent arrears are just one of the challenges that many businesses face. With today’s announcement that inflation is at a 30-year high, many firms up and down our country face a cost-of-doing-business crisis. Labour recognises how difficult the past two years have been for businesses up and down the country. Sectors of our economy such as aviation, live events, travel and tourism have been hit particularly hard.
The Lords amendments, which are all Government amendments, help to clarify the Bill. In our view, they also give appropriate powers to the Welsh Government; we know that discussions were undertaken. The amendments improve the Bill and we support them all, but there are still a number of areas on which I would welcome clarity and assurances from the Minister on how the Government will move forward.
First, we continue to be concerned that the Bill contains no limits on the costs of arbitration. We cannot let high arbitration fees, or concerns that fees will be prohibitive, deter landlords and tenants from using the processes established under the Bill to achieve a fair solution. That would be a failure of policy and of planning.
We have previously called for a cap on fees, but the Government did not accept that proposal. I note that the Minister in the other place said a cap could be imposed if there was evidence that it was needed, but I should be grateful if this Minister would specify his intentions in that regard. Will he update the House on when guidance on the costs of the arbitration process will be published? Will he also confirm that Lords amendment 18—which relates to schedule 1—effectively limits the liability of the arbitral bodies in the discharging of their duties under the Bill, which is what I understood from his comments?
Ensuring the quality of arbitration is important, and we have consistently called for the Government to explain how they will ensure that there are sufficient numbers of arbitrators to handle the volumes of cases under the scheme. What discussions has the Minister had with the arbitral bodies on their capacity, and on maintaining a sufficient number of arbitrators with the necessary skills and experience, and what quality assurance does he expect will be in place? It is important to have reassurances on these issues, especially in view of the limitation of liability that we have put into the Bill.
Finally on this issue, let me say that the arbitration process will not carry confidence unless the decisions are demonstrably fair and there is consistency of assessment. The Minister will know that business organisations had particular concerns about how the “viability of the business” would be established. Viability is referred to in some of the draft guidance published in February, but what review has the Minister undertaken of that guidance with stakeholders, and when will he finalise the guidance that will accompany the Act?
Let me turn briefly to the detail of the Lords amendments. The Bill, which applies largely to England and Wales, confers a number of powers on the Secretary of State in respect of Wales. Lords amendments 1, 3 and 10 are designed to ensure that different provisions can be made in relation to Welsh and English business tenancies. Lords amendment 3 clarifies that the power to extend the time limit for arbitration can be exercised separately for English and Welsh businesses, which is an improvement, while Lords amendment 10 allows the Secretary of State to reapply the Act to both England and Wales, or to just one of the nations.
Similarly, Lords amendments 4, 6 to 8 and 17 give Wales increased powers to extend the moratorium period, which is the period in which tenants have protection against enforcement action by the landlord in relation to covid rent arrears. This must, of course, be a process that works for both England and Wales, but also, looking at the Bill overall, for Scotland and Northern Ireland, in so far as there are limited provisions that apply to those nations.
Lords amendment 8 inserts a new clause requiring the Welsh Government to consent to any extension of the moratorium period for Welsh business tenancies under clause 23. It states that this moratorium period must be the same length as the arbitration period. Lords amendments 6 and 7 allow for the new clause specified in Lords amendment 8 by proposing that the current moratorium period should be six months long, rather than being tied to the arbitration period. This change allows for different moratorium periods to apply in England and Wales. We support those changes because we recognise that the Welsh Government should have a say in the extension of the moratorium period in Wales.
Lords amendments 12 to 14 were tabled in response to the report by the Delegated Powers and Regulatory Reform Committee. Lords amendment 12 removes the Government’s power to specify certain parts of the legislation that would not apply if the Bill itself were reapplied. Previously, the Minister would have had the power to pick and choose which parts of the Bill were reintroduced or reapplied, but Lords amendment 13 ensures that the Government can make modifications to a reapplication of the Bill only if they are “necessary”. That is important for the role of Parliament and the Welsh Senedd.
Lords amendment 15 allows the Minister to reapply the Bill in Wales only with the consent of the Welsh Government. Lords amendment 14 allows different provisions to be made in England and Wales during reapplication. Labour supports these amendments, and it is important that the Government have listened to the concerns of the Delegated Powers and Regulatory Reform Committee, which is a respected voice on these matters.
We are also pleased to see Lords amendments 5 and 19, which ensure that neither the tenant nor guarantors nor previous tenants are liable for any protected rent debt that an arbitrator has cancelled. Similarly, Lords amendment 20 ensures that neither the tenant nor guarantors nor previous tenants can be subject to winding-up petitions or bankruptcy orders for protected rent during the moratorium period. On Second Reading, I raised Labour’s concerns about ensuring that not only tenants but anyone liable for their rent are protected during the moratorium period, so I am pleased that these amendments support that protection.
Lords amendment 2 ensures that the provisions in clause 4, specifying closure requirements, apply to the closure of businesses and premises. On Third Reading, I raised concerns that businesses that no longer occupied the premises—because, for example, the pandemic had made a particular location unprofitable—would not be able to access the arbitration process. We are pleased to see this amendment, which ensures that the Bill explicitly allows such businesses to benefit from the provisions in this legislation.
In conclusion, the Lords amendments make some important changes to the Bill. They rightly increase the powers of the Welsh Government over this legislation, provide appropriate constitutional limits to the Government’s powers on reapplying the Bill, and ensure that tenants, guarantors and previous tenants are all protected during the moratorium period. However, Minister should provide further assurances in connection with these amendments—for example, on the cost of the arbitration process, and on ensuring that arbitrators apply the measures consistently across cases. Nevertheless, Labour supports all the Lords amendments. We support the Bill’s passage to Royal Assent and look forward to its implementation as soon as possible.
Paul Scully
I thank the hon. Lady for her contribution today, and for the way in which she has engaged with me and the Bill team. I also thank other Members across the House for their contributions. The Bill’s passage through both Houses has been a positive and collaborative process, and that is testament to its importance in supporting businesses in recovering from the ongoing impacts of the pandemic. The amendments made in the other place were made for good reason and will serve only to improve the Bill. Let me spend a couple of minutes trying to answer the questions that she has rightly and understandably raised.
The hon. Lady talked about the cost of arbitration. We want to ensure, as best we can, that arbitration fees are predictable and affordable. We have discussed this at length at various stages of the Bill, with good reason. The Bill aims to support both tenants and landlords in resolving rent debt, and it is therefore important that the scheme remains affordable and accessible. Approved arbitration bodies will have the function of setting arbitration fees, and they have the expertise to set them at a level that will ensure that the scheme is affordable while also incentivising arbitrators to deliver the scheme in good time. In the interests of transparency and accessibility, the bodies must publish the details of the arbitration fees on their websites, so that the applicant will know in advance how much it will cost to go to arbitration.
We will monitor the affordability of the scheme by engaging regularly with arbitration bodies, as well as with tenants and landlords. We will be able to judge how things are going by those early cases going through the process. The Secretary of State has the power to cap fees, should they become unaffordable. That power can be used where necessary, but it cannot used prematurely, because we do not want to reduce the number of arbitrators available to act, thereby risking the delivery of the scheme.
The hon. Lady talked about guidance on costs and the viability of businesses. I assured the House that we would bring forward guidance for arbitrators, and we are looking to expedite that, so that it happens within a couple of weeks of the Bill receiving Royal Assent. I am pleased to say that we have published the draft guidance, which is on the Government website, in order to gather feedback from the arbitrators. That addresses viability clearly by setting out a non-exhaustive list of evidence that an arbitrator could have regard to in assessing viability. The final version of the guidance will be published shortly after Royal Assent. Viability is deliberately not defined, because of the vast array of different business models, both within and between sectors.