Wednesday 24th November 2021
(3 years ago)
Commons ChamberCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Watch Debate
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 7th December 2021
(2 years, 11 months ago)
Public Bill CommitteesCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 7 December 2021 - (7 Dec 2021)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
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.
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.
Commercial Rent (Coronavirus) Bill (Second sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 7th December 2021
(2 years, 11 months ago)
Public Bill CommitteesCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 7 December 2021 - (7 Dec 2021)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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.
Commercial Rent (Coronavirus) Bill (Fourth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 14th December 2021
(2 years, 11 months ago)
Public Bill CommitteesCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: Notices of Amendments as at 10 December 2021 - (10 Dec 2021)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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 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.
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.
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.
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.
Thursday 27th January 2022
(2 years, 10 months ago)
Grand CommitteeCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 12 January 2022 - (12 Jan 2022)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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 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.
Thursday 10th February 2022
(2 years, 9 months ago)
Grand CommitteeCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: HL Bill 92-I(a) Amendment for Grand Committee (Supplementary to the Marshalled List) - (9 Feb 2022)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
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)
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.
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 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.
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.
Wednesday 9th March 2022
(2 years, 8 months ago)
Lords ChamberCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: HL Bill 116-I Marshalled list for Report - (7 Mar 2022)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
“(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 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)
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.
(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 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.
“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.
“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.
Tuesday 15th March 2022
(2 years, 8 months ago)
Lords ChamberCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Amendment Paper: HL Bill 128-I Amendment for Third Reading - (14 Mar 2022)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
“(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.
Wednesday 23rd March 2022
(2 years, 8 months ago)
Commons ChamberCommercial Rent (Coronavirus) Bill 2021-22 Read Hansard Text Watch Debate Amendment Paper: HL Bill 128-I Amendment for Third Reading - (14 Mar 2022)
This text is a record of ministerial contributions to a debate held as part of the Commercial Rent (Coronavirus) Bill 2021-22 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
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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.