Leasehold Reform (Ground Rent) Bill [ Lords ] (Third sitting)
Thursday 9th December 2021
(3 years ago)
Public Bill CommitteesRead Full debate Leasehold Reform (Ground Rent) Act 2022 View all Leasehold Reform (Ground Rent) Act 2022 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 December 2021 - (9 Dec 2021)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
Mike Amesbury (Weaver Vale) (Lab)
I beg to move amendment 10, in clause 26, page 15, leave out subsection (4).
This amendment aims to ensure that the provisions apply to retirement properties from the time at which they come into force for other types of property, whereas at present the Bill will prevent those provisions coming into force for retirement properties before April 2023.
It is a pleasure to serve under your chairmanship once again, Ms Elliott. With my final amendment—not including new clauses—I want to raise something that was raised repeatedly in the other place: the question of retirement properties. I understand that, after a review, the Government have dropped their plans to exclude retirement homes and they will be included after a period of transition. I am glad to see that the Government and Ministers have moved forward on this. However, like Members of the Lords, I see no reason why those living in retirement properties should not be given the same rights as those in other types of leasehold property, at the same time. In the spirit in which we have tabled other amendments, this amendment’s aim is to ensure that all leaseholders are treated equally and that the 50,000 or so leasehold owners of retirement properties are not subject to unjust costs while other leaseholders are free from them. That is something that Members from across the Committee have raised.
Should the Minister not want to accept the amendment, I would be grateful if he outlined why exactly retirement property has been given this longer transition period. Given that this is a growing market and we should certainly be encouraging our senior citizens who want to rightsize—freeing up family homes for those who need the space, while living somewhere that suits their needs—what assessment has the Minister made of the number of leaseholders who will fail to benefit from the new system should they purchase somewhere before 1 April 2023? What will he say to them? The stories about retirement housing and fees are some of the worst in the housing market. They have been very well documented, and I know that the Minister is familiar with them. Can the Minister outline what he intends to do about that in the transition period right up until April 2023?
The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Eddie Hughes)
It is a pleasure to see you back in the Chair, Ms Elliott.
As hon. Members will know, it is our intention to protect leaseholders from unfair practices through the Bill by ensuring that future regulated leases are restricted to a peppercorn rent, unless excepted. The Government believe that those who purchase retirement homes should benefit from the same reform as other future leaseholders. Although we would like the provisions of the Bill to come into effect as soon as possible, we have decided to give the retirement sector additional time to prepare for these changes. The hon. Member for Weaver Vale has tabled amendment 10 to remove this provision and do away with the transition period entirely. I am grateful for his consideration of this point and would like to explain the reasoning for including a transition period for retirement properties, and why I believe that that is the right thing to do.
The plan for peppercorn ground rent was announced in 2019, following the Government consultation entitled “Implementing reforms to the leasehold system”. At the time, we also announced that we would proceed with the proposal to exempt retirement properties from the peppercorn ground rents policy. That decision was made on the basis that developers of retirement properties incur additional costs as a result of the communal spaces that are characteristic of these kinds of development. However, having reviewed this in further detail, we concluded that the argument in favour of an exemption did not outweigh the benefits of ensuring that those purchasing retirement homes can take advantage of reform in the same way as any other leaseholder could.
The Government believe that it is a matter of fairness that those buying retirement properties should be able to realise the benefits of this legislation. It was therefore announced in January 2021 that the exemption for retirement property would no longer apply, and we have offered the transition in recognition of that change of policy. As such, the Bill will come into force no earlier than 1 April 2023 for retirement homes. This transition period will allow developers of retirement properties time to adapt to the forthcoming changes. We believe the transition period in the Bill has been fairly granted in balancing the needs of developers and fairness to leaseholders.
Nickie Aiken (Cities of London and Westminster) (Con)
I have some sympathy with the amendment, but I absolutely hear what the Minister says about what he is trying to achieve. Many house builders we have heard from over the last few weeks have decided not to continue charging ground rent, because it is not a good idea. If I may be so bold, perhaps the retirement development industry might like to stop charging such exorbitant fees for ground rent, without the need for legislation.
Eddie Hughes
I thank my hon. Friend for her intervention. I will no doubt refer later to meetings I have had, including as recently as yesterday, with representatives from the sector. It is not necessarily for us to prescribe how they might change their business models, but different developers in the sector certainly take different approaches. Given that we signalled one intention and subsequently changed to another, I think we are striking the right balance in allowing a transition period.
In the other place, arguments were raised on both sides; there were those who wished to extend the transition period and those who wished to remove it. As I said, conversations are ongoing, including as recently as yesterday, and hon. Members including my right hon. Friends the Members for Chipping Barnet (Theresa Villiers) and for New Forest West (Sir Desmond Swayne) have been in favour of amending the transition period for the sector.
We acknowledge that the retirement sector has had less time to prepare than the rest of the development industry. However, we have given the matter careful consideration, and we believe the transition period in the Bill strikes the right balance between protecting retirement property consumers and providing a fair period of adjustment for developers. In my conversation with representatives yesterday, it was clear that prospective purchasers are already aware of the planned legislation—they seem to be a well-informed group—and I guess they will be mindful of that when deciding when to complete their purchase.
With regard to hon. Members’ concerns about the impact, I think it will be minimal for two reasons. First, the people who buy this type of property seem to take longer to make the purchase than would perhaps otherwise be the case; in fact, the sell-out rate for such properties is considerably slower than for normal residential properties. Buyers have a greater period over which to consider the purchase, and they frequently visit several times—first by themselves, and subsequently with members of their family—so this is a very considered purchase. Secondly, they seem to be well-informed about the changes to legislation. For those reasons, I feel they will be protected.
Margaret Greenwood (Wirral West) (Lab)
Subsection (4) states:
“The day appointed for the coming into force of this Act in relation to leases of retirement homes must be no earlier than 1 April 2023.”
However, it does not say when the Act will come into force. Could the Minister clarify that point?
Eddie Hughes
It is based on when we expect the Bill to come into force in its standard form, and then allowing a subsequent transition period. Assuming that the Bill comes into force quickly after Royal Assent—we have committed to that happening within six months—with the transition period following on from that, we anticipate the provisions coming into force in April 2023. On that point, I ask the hon. Member for Weaver Vale to withdraw the amendment.
Mike Amesbury
I thank the Minister for his response, and I thank other Members for their contributions. This measure would be a step forward. Martin Boyd of Leasehold Knowledge Partnership has consistently expressed concerns about the matter in the past. I know that Members and stakeholders have lobbied for these properties to be exempted completely, which would have been the wrong course of action. I concur with the hon. Member for Cities of London and Westminster in hoping that the market responds positively to the changes. In the interests of minimalist legislation and in the spirit of co-operation as we march towards Christmas, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Eddie Hughes
The clause makes provision for the commencement of the Bill. The substantive provisions of the Bill will come into force on a day appointed by the Secretary of State in regulations, but Members can rest assured that we intend there to be no unnecessary delay in implementation. I thank the hon. Member for Garston and Halewood, who is not in her place, for her question on Tuesday regarding the commencement of the Bill following Royal Assent. We understand her concerns about the commencement date, but setting a hard date right now would mean no flexibility should other issues arise making it difficult to achieve.
I assure the Committee that we will press ahead at full steam to bring the legislation into force, but we must also be practical and allow for contingencies, should they arise. That is why we think it is right to have a contingency period for us to implement the provisions within six months of Royal Assent. For completeness, I reiterate what I said in relation to amendment 10: the clause also provides that the Bill cannot be brought into force any earlier than 1 April 2023 with regard to retirement property. We are keen that leaseholders of retirement properties get the same benefits from the legislation as other leaseholders, but we also want to ensure that the sector has time to prepare for the change.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 27
Short title
Amendment made: 8, in clause 27, page 15, line 25, leave out subsection (2).—(Eddie Hughes.)
This amendment removes the privilege amendment inserted in the Lords.
Clause 27, as amended, ordered to stand part of the Bill.
New Clause 1
Ground rent for existing long leases
“Within 30 days of the day on which this Act comes into force, the Secretary of State must publish draft legislation to restrict ground rents on all existing long residential leases to a peppercorn.”—(Mike Amesbury.)
This new clause aims to ensure that the Government introduces further legislation to remove ground rent for all leaseholders, whereas the Act currently only applies to newly established leases.
Brought up, and read the First time.
Mike Amesbury
I beg to move, That the clause be read a Second time.
Today is the last day of the Committee—I know people will be disappointed about that—and my last day sitting opposite the Minister. Indeed, it is my last day shadowing the housing brief, a role I have thoroughly enjoyed. I hope that I have made some difference with challenge and scrutiny in the building safety crisis and on leasehold reform. I wish the Minister and his departmental team well, and I urge them to be bolder in their response to the crisis. Ultimately, of course, Opposition Members and I want to secure a Labour Government in the not-too-distant future, although I know that not everyone in Committee shares that objective.
Eddie Hughes
The hon. Gentleman said that I would respond by saying there will be more reforms in due course, and I think this should be something to be welcomed. What is sad, following what he said, is that he will not necessarily be part of the discussions, because I have found it incredibly helpful to work with somebody who is pragmatic, challenging and reasonable—it has been a real privilege.
New clause 1, which was tabled by the hon. Gentleman, would require the Government to produce draft legislation within 30 days of the Bill coming into force to restrict ground rents on all existing residential leases to a peppercorn. He will know that that is beyond the scope of the Bill. The Government share his concerns about the substantial difficulties that some existing leaseholders face, including burdensome lease terms and high premiums to extend their lease and buy the freehold.
The scandal of high and escalating ground rents is a serious concern, too. Indeed, that is a big part of why we are here today to debate the Bill. Some existing leaseholders are faced with high charges, which is why we asked the Competition and Markets Authority to carry out an investigation. As hon. Members will know, the investigation of potential unfair terms and mis-selling is ongoing, and my Department follows it closely. Indeed, I met the CMA last month to receive a progress update. It might benefit the Committee if I expand on the investigation and the progress we have seen so far.
In early 2020, the CMA’s report identified a number of serious concerns, including high and increasing ground rents. Following that report, it opened enforcement action involving four leading housing developers. I know that hon. Members will join me in welcoming the progress that the CMA has made since then. The CMA’s work is not to be underestimated. It has secured settlements with two leading housing developers and an investor in the leasehold sector, which have committed those parties to changes that will benefit thousands of existing leaseholders. The developers have agreed to refund homeowners who saw their ground rents double, and to allow leaseholders to buy the freehold of their property at a discount. Those landmark commitments will ensure greater transparency for the affected leaseholders, helping future buyers to make informed decisions without feeling pressured by time constraints. The CMA has made excellent progress, and that is just the start. We support the ongoing investigation and believe it will send a clear signal to others in the sector to follow this lead.
I referred earlier to the problem that some leaseholders face: a very high premium to buy their freehold—a process known as enfranchisement—or simply to extend their lease. The hon. Member for Weaver Vale will be aware that, earlier this year, we announced a package of reforms of the valuation process that is used to calculate those premiums. Our changes to the enfranchisement valuation process, including abolishing marriage value and prescribing calculation rates, will result in substantial savings for some leaseholders, particularly those with less than 80 years left on their lease. In fact, existing leaseholders can already buy out their ground rent when they extend their lease.
Importantly, we have announced that we will cap the treatment of ground rent in the premium calculation. This means that, in effect, the cost of buying out the ground rent will be reduced for many leaseholders, particularly those with onerous ground rents. We have also committed ourselves to enabling all leaseholders to buy out the ground rent without needing to extend their lease. That will be the case for houses and for flats.
I appreciate the urgency in wanting to address issues faced by existing leaseholders—indeed, I campaigned on that as a Back Bencher—and I reassure hon. Members that the Government are working at pace to bring forward wider leasehold reforms. However, I must once again state that I do not think that the arbitrary deadline in new clause 1 would be useful in that context. As members of the Committee will know, and indeed as, the hon. Member for Garston and Halewood, who is not in her place, said this earlier this week, leasehold law is extremely complex.
Dr Neil Hudson (Penrith and The Border) (Con)
I echo the Minister’s comments and thank the hon. Member for Weaver Vale for his service in his Front-Bench role. I also thank Opposition Members for the constructive approach they have taken to looking at the Bill; we have moved together positively. I also echo the Minister’s comments in saying that this tightly worded Bill is an attempt to address future wrongs, but I am encouraged to hear that the Government will take comments on board and look at existing wrongs as they move forward with leasehold reform.
Eddie Hughes
I thank my hon. Friend for his endorsement and will turn to him for advice and support as we formulate that policy. However, we do need to take time to get the reforms right. Hon. Members can rest assured, though, that reforming the leasehold system is a high priority for the Government. I therefore ask the hon. Member for Weaver Vale to withdraw the motion.
Mike Amesbury
In this case, I am going to agree to disagree. The measures in the new clause are a fundamental aspect of legislation. We have spoken about how all leaseholders should be equal, and indeed collectively we want to ensure that the feudal leasehold system is left in the history books once and for all.
On Second Reading, the former Secretary of State, the right hon. Member for Newark (Robert Jenrick), said that the Bill was
“the appetiser for the main course”
while I referred to the desire of Opposition Members and, importantly, the desire of the constituents we represent, for an
“all-you-can-eat buffet of reform.”—[Official Report, 29 November 2021; Vol. 704, c. 714-33.]
We have waited long enough. Indeed, we have had this nonsensical, unjust system for hundreds of years in England and Wales, and I know that none of us is proud of it, so I will not withdraw the motion. The Minister has examples on his patch where existing leaseholders will be trapped in the current system, but over the road or in another phase of a development, properties will be ground rent free. That is wholly unjust and has real consequences. I encourage all members of the Committee to support the new clause.
Question put, That the clause be read a Second time.
Mike Amesbury
I beg to move, That the clause be read a Second time.
Our system of leasehold is unfair, unfit for purpose and a hangover from a time that should be consigned to history, as I have stated throughout the Committee and throughout the journey of the Bill. The best answer to fixing the issues with leasehold is to move to a system that most of the world moved to a long time ago. That system is commonhold.
Current levels of commonhold are very low, so the new clauses asks the Government to understand the impact the Bill will have on levels of commonhold. In the other place, the Minister claimed the Bill would level the playing field, and it would be useful to have that information once the Bill comes into force. This Minister will be aware, I hope, that the Mayor of London has committed to furthering commonhold and pledged in his manifesto to start further trials in our capital. Will the Minister tell us how much longer the rest of the country has to wait to learn what is the Government’s policy on increasing commonhold uptake beyond the claim made in the narrative about the Bill?
Will the Minister update the Committee on how the Commonhold Council is coming along, what progress is being made and when we can begin to expect concrete change to take place? Commonhold should be the default tenure; that is something hon. Members across the House have spoken about for a number of years, and this is a real opportunity to turbo-charge that change. I look forward to the Minister’s reply.
Eddie Hughes
The hon. Gentleman’s new clause 2 would require the Government to produce an assessment of the legislation’s impact on the level of commonhold ownership. The impact assessment would have to be published within 60 days of the Act’s passage. However, as he said himself, the problem with commonhold in this country is that, despite its name, it is not a common tenure at all. Fewer than 20 developments have been created since the Commonhold and Leasehold Reform Act 2002 Act came into force.
We want that to change. We want to see the benefits of freehold ownership extended to more homeowners. The change brought about through this legislation will help to create the conditions for more commonholds. It will level the playing field, as it will remove an incentive for developers to build leasehold rather than commonhold homes. However, we also need further to lay the groundwork for greater use of commonhold, which is why we have established the Commonhold Council—a partnership of industry, leaseholders and Government—to prepare consumers and the market for the widespread take-up of commonhold. It is also why we asked the Law Commission to recommend reforms to reinvigorate commonhold as a workable alternative to leasehold, for existing and for new homes. We are reviewing those proposals and will respond in due course.
The new clause looks at the interaction between the Bill and commonhold. We have of course considered that interplay, and believe that the Bill and our work to increase uptake of commonhold are consistent with our aim of more fairness and transparency for homeowners. The Bill and our commonhold reform programme are complementary and we do not believe it necessary to conduct a specific impact assessment as the new clause demands. As hon. Members will know, such exercises also take up considerable resources. I think we are all agreed that we should avoid delaying further leasehold reform, and I am afraid that would be the effect of the new clause.
The hon. Member for Weaver Vale asks about progress on the Commonhold Council. All I can say is that work is ongoing. I am sure the chair of the council, Lord Greenhalgh, will continue to push forward, and we will be publishing more information on its work early in the new year.
I am sorry that the hon. Gentleman felt it necessary to table the new clause, but I hope he will consider withdrawing it.
Mike Amesbury
I thank the Minister for his detailed response. It would be useful to have an update from the chair of the Commonhold Council for shadow Ministers, and to all members of the Committee. That would be appreciated. In the spirit of co-operation, it was important to table the new clause as part of the narrative and to get the detail on the record. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 3
Service charges
“Within 2 years of the passage of this Act, the Secretary of State must publish an assessment of the impact of the Act on the level of service charges and other costs charged to holders of long residential leases.”—(Mike Amesbury.)
This new clause aims to ensure that the Government publishes a report on the impact of reducing new ground rents on other costs incurred by leaseholders.
Brought up, and read the First time.
Mike Amesbury
I beg to move, That the clause be read a Second time.
This final new clause addresses a point made to me by a number of stakeholders and members of the Committee over the past few weeks. It would ensure that the Secretary of State published an assessment of the impact of the Act on the level of service charges and other costs charged to leaseholders.
Ground rents have been a convenient way of pushing up the costs of leasehold, and an easy way of making more money off leaseholders, but they are not the only way. As we have said, new ground rents are tapering off in number, but other charges have begun to crop up and are starting to take their place—ground rents for parking spaces, rather than residential units, is one example. We are already beginning to see a number of these charges emerge. The Leasehold Knowledge Partnership gives several examples on its website. I encourage Members to look at them.
In an earlier debate, I raised the point that service charges are increasing as freeholders exploit other income streams. Those freeholders do not seem to care about the financial pressure they are putting on leaseholders, or that these are people’s homes, where they deserve to live without being exploited by whatever organisation has bought the freehold or chosen to manage their property.
The clause would require details of charges to be published within two years of Royal Assent. That, frankly, is because we face greater reform, and so I expect that we might see these trends emerging before the Government introduce more legislation. Developers looking to explore other avenues of income will bide their time until they feel the coast is clear.
I tabled the new clause in the hope of raising with the Minister again that we risk playing Whac-a-Mole with leaseholder costs; we could ban one stream of income only to find that freeholders have discovered another. I ask the Minister to outline exactly how he expects to prevent that.
Eddie Hughes
As we draw towards the end of the Bill Committee, I thank Members on both sides of the room for their considered input. We work best when we work collaboratively. As I have said a few times, this is an issue I started to champion as a Back Bencher, so it is an incredible privilege to be the Minister leading the discussions. I thank everyone for their time.
New clause 3 brings us back to the issue of service charges, and to concerns about freeholders using such charges to charge ground rent by another name. The Government believe that all fees and charges should be justifiable, transparent and communicated effectively. Service charges that have been artificially inflated to make up for lost ground rent income would not meet those requirements. If any landlord seeks to recoup what they consider to be lost ground rent or other funds through service charges or any other charge, the wide definition of the term “rent” in the Bill will allow a tribunal to take the charge into account when deciding if it is actually prohibited rent. That is why the Bill has been drafted as it has, and why we have adopted a flexible definition of rent. As I explained in a previous sitting on Tuesday, the definition relies on its naturally understood meaning and includes anything in the nature of rent, whatever it is called. Where a freeholder has attempted to get around these provisions, the definition allows the tribunal to consider, in each case, whether such a charge actually represents a prohibited rent, even if it is not explicitly called a ground rent.
As was discussed earlier in the week, the penalties for landlords who charge a prohibited rent are significant —a maximum of £30,000 per lease. If a landlord had a block of 10 flats, then the penalty they would be risking would reach a significant amount.
We have provided a robust system with not only a serious deterrent, but a route for challenging freeholders who act this way. That is all relevant to the new clause, which asks for an impact assessment. I understand the concerns that motivated the new clause, but hopefully the hon. Member for Weaver Vale can appreciate that the drafting of the Bill is intended to specifically guard against service charges being used in the way that he mentions.
Ian Byrne (Liverpool, West Derby) (Lab)
It is an honour to serve under your chairship, Ms Elliott. Surely the new clause would make the Minister’s job easier, because after two years we would have an assessment of how successful the legislation has been. I am at a loss for a reason why the new clause should not be accepted; it would make it easier for the Minister, his Department and the Government to tighten legislation, if that was required. It asks for an assessment of the issue that we are speaking about. Could the Minister respond to that?
Eddie Hughes
I thank the hon. Gentleman for his intervention. It seems perceptive, given that the paragraph that I was about to move on to says: hon. Members will know that further leasehold reform will follow later in the Parliament, so the efficacy of an impact assessment of this kind, during a period of wider reform, would be questionable. It is difficult to carry out an impact assessment when many moving parts are changing simultaneously; this is not a laboratory experiment in which we can control just one element. As the hon. Gentleman is a member of the Select Committee on Levelling Up, Housing and Communities, I can say that I look forward to working with him in the future. Should any concerns arise, my door is always open.
Lilian Greenwood (Nottingham South) (Lab)
I listened carefully to what the Minister said about the definition of rent in the legislation, and the way that it could be used to cover other ways in which some freeholders may act. How confident is he that leaseholders will be aware of that provision? If freeholders seek to increase other costs and charges, will leaseholders be sufficiently aware that they can exercise the rights set out in this Bill?
Eddie Hughes
I thank the hon. Lady for that intervention. There are two sides to that story. The fact that this legislation is being enacted, and the attention that will be drawn to that, will hopefully inform a good number of leaseholders. Also, the possible financial penalty—up to £30,000—should act as a significant deterrent for the freeholders, who are much more likely to be well informed and will hopefully be severely deterred by that. As the description of rent is so wide-ranging—it includes anything in the nature of rent—they will well understand that, should they be challenged at tribunal, they would likely be found out.
Given the two sides of that equation, there is good reason for us to be confident that nobody will try to introduce rents through the back door. On that note, I once again ask the hon. Member for Weaver Vale to withdraw the new clause.
Mike Amesbury
I thank the Minister for his detailed response, and all those Members who made powerful and informative interventions. Undoubtedly this is a live issue. I said, in relation to an earlier clause of the Bill, that any one of us could set up as a management agent and apply some interesting service charges. We have seen evidence of that weekly—daily. I urge the Minister, and certainly the Department—he spoke about keeping a serious watching brief—to respond to the problem. This Bill is the appetiser, we are told, but they should certainly respond to it in the main course. Opposition Members and, indeed, Government Back Benchers will rightly hold their feet to the fire.
In the spirit of co-operation, and given that this will be my last input today, we will withdraw the new clause. I genuinely thank everybody for giving their valuable time to consideration of the Bill so far. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Bill, as amended, to be reported.
Commercial Rent (Coronavirus) Bill (Third sitting)
(3 years ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee except for the water provided. I encourage Members to wear masks when they are not speaking, in line with Government and House of Commons Commission guidance. Please also give each other and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Hansard colleagues would be grateful if Members emailed their speaking notes to hansardnotes@parliament.uk.
We now begin line-by-line consideration of the Bill. The selection and grouping for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. Please note that decisions on amendments do not take place in the order that they are debated but in the order that they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates, and decisions on new clauses will be taken once we have completed consideration of the existing clauses of the Bill. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking about it that they wish to do so.
Clause 1
Overview
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
It is a pleasure to serve under your chairmanship, Mrs Murray.
Many businesses are still on the long road to recovery following the pandemic, particularly in the sectors that have been hit hardest, such as hospitality and retail. The most recent data indicates that rent collections for this year’s third quarter are much higher than they were for last year’s third quarter, but they are still not at pre-pandemic levels. An estimated total of just under £7 billion of rent was deferred over the pandemic.
Although we have provided an unprecedented package of support to businesses, we have also been clear that we expect landlords and tenants to come together and negotiate. Agreements have been reached for many businesses, but for others negotiations have stalled, leaving rent arrears to build up, which could threaten many of the valued jobs that those businesses provide.
The statutory arbitration process that the Bill introduces should be used as a last resort, where landlords and tenants have been unable to reach their own agreements. For those tenancies, the Bill will ring-fence rent debt accrued during the pandemic by businesses required to close, and set out a process of binding arbitration that will resolve rent disputes and help the market return to business as usual. The Bill will temporarily restrict remedies available to landlords in relation to rent debt built up during the pandemic. To respect the primacy of the landlord-tenant relationship wherever possible, the arbitration process will not be available where legal agreements are reached between landlords and tenants over the payment of a protected rent debt.
I commend the clause to the Committee.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship today, Mrs Murray.
I am grateful to the Minister for his opening remarks, in which he set out why the Bill is needed. Indeed, some of the estimates of the deferred rent debt that has been built up are around £7 billion, with some as high as £9 billion. That is why we called for action earlier this year, so that there was clarity about how some rent disputes would be resolved, and resolved fairly, because we know that the impact of the pandemic is ongoing.
I have concerns that may be outside the scope of the Bill, unless we decide to accept some amendments on Tuesday. In the light of the announcements yesterday and the guidance coming out today, there may need to be a review if there is a risk of further rent arrears if income drops for businesses in the period ahead. So I hope that there will be ways in which we can keep matters under review, in the light of recent developments.
Clause 1 indeed provides an overview of the Bill, and it is in part 1 of the first three short parts. Part 1 is about “Introductory Provisions”, including important definitions; part 2 provides the framework for statutory arbitration between landlords and tenants; and part 3 provides for the ongoing restrictions on “Certain remedies and insolvency arrangements” in relation to protected rent debt.
Importantly, clause 1 also confirms that nothing in the legislation affects the ability of parties to a business tenancy to reach a negotiated settlement outside the arbitration process. That is important because the arbitration process is a backstop; it is a last resort. It is preferable—in terms of time, cost and the relationship between the parties—that they can be supported to reach a negotiated settlement without the need to resort to arbitration.
Labour will continue to encourage landlords and tenants to negotiate settlements, and it is good to see that most of them have already done so; indeed, that was an important part of the feedback from witnesses this week. It is a sign that most commercial landlords and tenants have worked closely together to get through the crisis, and I pay tribute to them for doing that, because it is a recognition that we have all been in this together and that everybody needs to play their part in bringing flexibility where it is needed.
UK Hospitality estimated that around 60% of its members reached agreement with their landlords on any outstanding debt, but there is an estimate that around one in five have yet to reach a negotiated settlement. Perhaps some settlement discussions are still in progress.
We support clause 1 and we will vote for it to stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
“Rent” and “business tenancy”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause provides clarity with regard to which payments owed by a business tenant to their landlord under their tenancy contract will be considered to be rent for the purpose of the Bill. Rent includes contractual payments owed by the tenant to the landlord for occupation and use of the property, as well as payments collectively described as service charges and interest on any unpaid amount. Including both service charges and interest on any unpaid amount within the definition of rent will allow the arbitrator to consider a broad range of arrears that may be owed by the tenant to the landlord, rather than only the payments for occupation and use. The arbitrator will then consider whether relief should be awarded in respect of some or all of the amount owed.
The definition of business tenancy in the Bill is broadly consistent with the definition of business tenancy under section 82 of the Coronavirus Act 2020, which served to temporarily prevent landlords from evicting tenants. However, the Bill focuses on business tenants and their immediate landlords.
I commend the clause to the Committee.
Seema Malhotra
I thank the Minister for his opening comments on the clause.
Clause 2 defines the key terms that are central to the operation of this legislation, notably rent and business tenancy. Rent is stated to include the cost of using the premises and service charges, as well as interest on unpaid amounts relating to either, with VAT included. We have no concerns about this definition; it seems sensible and we hope that it is widely accepted.
Business tenancy means a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies. That Act applies to any tenancy where property is or includes premises that are occupied for the purposes of business. The Minister will have heard the concerns of the British Retail Consortium, raised on Tuesday, about the definition of the business tenancy. It has concerns that any tenancy contracted out of the 1954 Act would fall outside the scope of these protections. Will the Minister confirm the assurances that he gave the British Retail Consortium on that point?
As Kate Nicholls of UK Hospitality said in her evidence, also on Tuesday:
“It is important that this piece of legislation sits within the existing canon of property law”––[Official Report, Commercial Rent (Coronavirus) Public Bill Committee, 7 December 2021; c. 5, Q3.]
and that definitions are consistent with that existing canon. Subject to meeting the BRC’s concern about business tenancies, the definitions in clause 2 would in our view meet that test. I look forward to the Minister’s response. We support the definitions and will support the clause.
Paul Scully
Yes, I can confirm that tenancies to which part 2 of the 1954 Act applies are covered by the Bill, including where parties have agreed to exclude certain provisions of part 2 of that Act. I should also say, in reply to the hon. Lady’s earlier comments about future powers and what would happen in another coronavirus situation. The Bill does indeed contain a power that allows the provisions to be applied again in the event of future closure.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
“Protected rent debt”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause defines “protected rent debt”, a key concept of the Bill, so that landlords and tenants have certainty about what is in the scope of arbitration. The definition for protected rent includes rent that is owed to the landlord under the tenancy if the tenancy was adversely affected by coronavirus, and excludes rent that the tenant owed to the landlord either before the pandemic or after businesses were allowed to open for business. That is in line with the Government’s expectation that the market should now return to normal, with the contractual arrangements once again adhered to.
The clause also states that if all or part of the protected rent debt was satisfied by the landlord by drawing down from the tenancy deposit, the sum that was paid for the deposit should be considered protected rent debt and should still be considered unpaid.
Seema Malhotra
I thank the Minister for his opening comments on clause 3, which defines “protected rent debt”. Rent is protected if the tenant was adversely affected by coronavirus within the meaning of clause 4 and the rent is attributable to a period that is protected within the meaning of clause 5.
Subsection (3) states that rent consisting of interest due on an unpaid amount is
“attributable to the same period of occupation…as that unpaid amount.”
That means that if a tenant is paying interest on rent due, the interest is also considered to be from the same period of occupancy as the rent. Subsection (5) sets out that if rent due is only partly attributable to a period of occupation, only the rent due that is attributable to that period qualifies as protected rent. That means that if there is rent due that is attributable to occupation by the tenant both outside and within the protected rent period, only that which was within the protected period is regarded as protected rent. It is likely there will be some confusion around that. Perhaps the Minister intends to have clear examples and guidance so that those who use the legislation will be clear about how they need to do their calculations.
Clause 3 does clarify what is meant by protected rent debt. We support the definition and will vote for the clause.
Paul Scully
Indeed, guidance will be really important to ensure that arbitral services and bodies have all the information that they need to make a correct definition. As the hon. Lady says, including interest is important, otherwise the burden of meeting interest under punitive contractual rates would defeat the object of the Bill.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
“Adversely affected by coronavirus”
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 4 is essential. It establishes which businesses can access arbitration, the Bill’s temporary moratorium, and other measures. We appreciate that the pandemic has been difficult across the economy, but we are seeking to target this measure at those businesses most directly affected so that we can resolve cases quickly, providing businesses with certainty while protecting jobs in our most vulnerable sectors, such as hospitality, retail and leisure. That is important not only for eligible businesses, but for the individuals who contribute to them.
Clause 4 provides that a business that was adversely affected by coronavirus and its rent may be in scope if it was required by regulations to close all or part of its business or premises for any of the time while closure requirements were in place: from 21 March 2020 until 18 July 2021 for England, or until 7 August 2021 for Wales. If a business was subject to a closure requirement for any period within those times, it meets the test, regardless of whether it was allowed to carry out other limited activities such as takeaways. Without that targeted approach, we could see rent issues from the pandemic unresolved for a significant amount of time, so I urge the Committee to support the clause.
Seema Malhotra
I thank the Minister for his remarks. As he described, clause 4 clarifies what is meant by businesses “adversely affected by coronavirus”. It states that a business can be categorised as adversely affected if part or all of it was obliged to close due to coronavirus restrictions during the relevant period. It also states that any specific limited activities that the business was able to take part in during its forced closure can be disregarded as immaterial for the purposes of the Bill. We think that is very important, otherwise we will have situations in which one side or the other says that a business is not eligible for the scheme for the purposes of arbitration, so we support having that clarity in the Bill.
The clause also defines the relevant period as 21 March 2020 to 18 July 2021 for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. We do not object to those dates—there are clear reasons why they have been chosen, given that Government policy changed around those times. My only concern is that the tail end of recovery has been slower in some sectors, such as aviation, travel and tourism, than in others. The dates on which some businesses were able to reopen and start to do much better did not apply in the same way to all businesses in all sectors.
Although we have not tabled any amendments to those dates and we support clause 4, it will be important for the Minister to keep this Bill under review, bearing in mind that there has not been an equal recovery for businesses. If concerns are raised with him about businesses that may or may not be eligible, but have been impacted by coronavirus closures or consequences, it is important that some amendments could be made in due course, should they be required.
Paul Scully
I think we all acknowledge the fact that this is not a perfect science: some businesses that were suffering through the lockdown will continue to have a slow recovery. This is a focused Bill dealing with a particular kind of ring-fenced debt, and we want to make sure that we encapsulate this issue, so that we do not make the Bill and the process of arbitration too big in a way that benefits nobody. I think the Bill is proportionate, and will have the right effect.
In terms of a long tail of recovery, we obviously need to look at the support from a holistic point of view, and at the additional measures that we have put in place to support businesses, including the sectors that the hon. Lady mentioned. Importantly, we will continue to flex. I have been on calls today, and over the past few days—especially with plan B being announced—with representative organisations, and people from hospitality in particular, which is hard pressed. We will continue to listen and respond.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
“Protected period”
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 5 sets out the protected period from which rent can be referred to arbitration. The Government are committed to supporting landlords and tenants to resolve rent that has built up. For the arbitration scheme to do so, the parties and the arbitrator must be clear on from which periods rent can be referred to arbitration. Closure requirements and other restrictions were lifted at different times for different types of businesses as part of the appropriate road map out of restrictions, and the reducing of alert levels. That is why the protected period runs from the start of closure requirements until the last day that a business was either required to close or subject to another specific restriction on how it could operate or use its premises.
The period is not affected by general restrictions that applied to all businesses and requirements to give or display information, such as requirements to display information about the wearing of face masks, but where particular types of businesses were subject to a restriction under coronavirus regulations, the period takes account of that restriction. It is intended to take a clear and appropriate approach to the rent debt that may be referred to the arbitrator. The arbitrator will not necessarily award relief in respect of all debt relating to the period, as the appropriate relief will depend on the circumstances, but I urge the Committee to support the clause.
Seema Malhotra
I thank the Minister for his remarks. Clause 5 defines what is meant by the protected period and specific coronavirus restrictions for the purposes of the Bill. He has outlined the dates for the protected period, and that a specific coronavirus restriction means any requirement other than a closure requirement that regulated any aspect of the way that a business was to be carried on. Requirements to provide information on premises, or requirements that applied more generally to businesses, are not included under the specific coronavirus restrictions.
Clearly, as we have discussed, many businesses continued to experience significant covid impacts beyond the end of the protected period. However, we recognise the need to strike the right balance between the interests of landlords and tenants, and therefore the need to limit the protected period to one that is clear about how arbitrators will look at and assess claims and that is clearly aligned with policy. I hope that the Minister will have heard the reflections of stakeholders, including Andrew Goodacre from the British Independent Retailers Association, that businesses that were not forced to close—essential businesses—may still have suffered significant economic consequences.
We want to ensure that there is fairness, and that all viable businesses that suffered an impact will be supported to continue through the ongoing recovery. Overall, we support the measures and definitions in clause 5, and will support it standing part.
Paul Scully
The hon. Lady is right: this is a focused Bill, looking at the first period of the pandemic. However, as I have said, we will continue to listen to various sectors and work with them to ensure that we can recover equally.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
“The matter of relief from payment”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause sets out the two questions that the arbitrator must decide before considering what, if any, relief should be given to the tenant. That is important because it ensures that arbitration capacity and relief are targeted at those who need it most, namely those whose rent has been impacted by closures and restrictions within the ring-fenced period. The first question is whether there is any protected rent debt. The second is whether the tenant should be given any relief in respect of the payment of that debt and, if so, what type of relief.
The clause also sets out clearly the types of relief that an arbitrator can award in respect of protected rent debt: writing off part of or all of the debt; giving more time to repay the debt; or reducing or writing off any interest on the debt. Setting those clear boundaries will help arbitrators to reach awards quickly and provide adversely impacted businesses with the certainty they need to recover from the pandemic.
Seema Malhotra
I thank the Minister for his opening remarks. Clause 6 clarifies references to the matter of relief from payment—that is, the subject to be dealt with by an arbitrator under the legislation. It relates to whether there is protected rent debt and, if so, whether the tenant should be given relief from the payment of that debt. The Minister has outlined what that means but, to summarise again, it is the writing off of the whole or part of the debt, giving time to pay the whole or part of the debt, and reducing any interest payable on the debt. It is right that arbitrators are given the flexibility to provide for a form of relief that is appropriate for the specific circumstances of a case. Indeed, one or more forms of the relief may be appropriate depending on the circumstances of the landlord and the tenant. We support these measures and clause 6 standing part of the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Approval of arbitration bodies
Question proposed, That the clause stand part of the Bill.
Paul Scully
The arbitration scheme will be delivered by independent arbitration bodies. The clause gives the Secretary of State the power to approve arbitration bodies for that purpose. Arbitration bodies will have to demonstrate that they are suitable before being approved. Further information on what constitutes “suitable” and how to become an approved body will be published on gov.uk.
The Secretary of State can also withdraw approval status if the body is no longer suitable to deliver arbitration services. The Secretary of State must notify the body if that is the case, and the body will have an opportunity to make representations. Under the clause, a list of approved arbitration bodies must be maintained and published by the Secretary of State, enabling parties to a dispute to know to whom an application for an arbitration may be made. The clause is therefore crucial to enable a high-quality, independent and accessible service to be delivered to landlords and tenants.
Ruth Cadbury (Brentford and Isleworth) (Lab)
It is a pleasure to serve under your chairship, Mrs Murray. When the Government create a dispute resolution process, as the Bill does, it goes without saying that there needs to be arbitration bodies. We naturally support the clause—although we have a couple of amendments coming up—as it is inevitable and clear. However, I want to address a point in subsection (7), which states:
“The Secretary of State must maintain and publish a list of approved arbitration bodies.”
We hope that the list will be easily discoverable and regularly updated. On subsection (6), we hope that the Government will ensure that the process of removing arbitration bodies that are not up to scratch is done transparently and speedily. It is absolutely essential that both parties to arbitration—landlords and businesses—have confidence, that the process is fair, and that arbitrators are trusted and appropriately experienced. Although we seek Government reassurance on that, we will support clause 7.
Paul Scully
I reassure the hon. Lady that we want to ensure that everything is transparent and easy to find. People are hard pressed and have to contend with the survival of their businesses, so it is really important that we give them as much information as possible. Indeed, we want to ensure that, should we be required to remove any arbitration services from the list, we do so in an open and speedy way, not least because we want to get through the process as quickly as possible—there is no point in dragging it out—for the benefit of landlords and tenants.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Functions of approved arbitration bodies
Ruth Cadbury
I rise to speak to the amendment, which seeks to clarify the definition of “debt claims”, including claims against guarantors. Currently, “debt claim” has the same meaning as in paragraph (2) of schedule 2, and “tenant” includes a person who guarantees the obligations of the tenant under a business tenancy.
The purpose of the amendment is to provide extra clarity on whether the protections given against county court action are also given to the guarantors of tenancies. We do not want to create a back door by which tenants are protected from enforcement but the guarantors are still liable. It is crucial that the Government ensure that guarantors of tenants are also protected against debt claims during the prescribed six-month period. We do not want a common-sense measure to be circumvented by landlords going after guarantors with no limit.
Ruth Cadbury
I was speaking to the wrong amendment, Mrs Murray. I apologise to Committee members and staff.
I beg to move amendment 1, in clause 8, page 6, line 25, at end insert—
“(2A) The Secretary of State must by regulation specify the meaning of ‘qualifications’ and ‘experience’ for the purpose of this section.”
This amendment would require the Secretary of State to specify by regulation to meaning of qualifications and experience in section 8.
Amendment 1 would require the Secretary of State to specify by regulation the meaning of “qualifications” and “experience”. A fair arbitration process is crucial for businesses, landlords and all involved to have faith in the new system. The Bill states that there is a list of approved arbitrators who are appointed
“by virtue of their qualifications or experience”.
Our straightforward amendment would require the Secretary of State to specify just what those qualifications and experience should be.
During the Committee’s first oral evidence session, we had witnesses who focused on the importance of financial qualifications for the arbitration, because most cases will focus on the financial situation for the parties. One witness had an alternative view, however, and suggested in their written evidence that arbitrators should be legally qualified due to the complex nature of some cases and the need for a fair, transparent process.
When the Bill was introduced, we said that it was crucial that businesses have faith in the whole of the arbitration process. Equally, we said that it was important that the process is transparent and fair. That is why our amendment would require the Secretary of State to outline just what the necessary qualifications and experience should be. That would reassure all those involved in the process that it is being overseen by trusted and qualified individuals and groups.
Paul Scully
I think that we all agree about the importance of having the right arbitrators in place to carry out this important work. The Bill already contains steps to ensure that arbitrators will have the necessary qualifications and experience. First, the Secretary of State may approve an arbitration body only if it is considered suitable to carry out its required functions. If the Secretary of State considers an arbitration body not to be properly carrying out its functions, including those relating to the assessment of qualifications and experience, the Secretary of State can withdraw approval.
Secondly, the arbitration bodies themselves are required to maintain a list of arbitrators that are suitable to work on cases that fall under the Bill by virtue of their qualifications or experience. It is right for the arbitration bodies, as the experts on this matter, to determine which arbitrators are suitable given their qualifications and experience. Arbitration bodies that have demonstrated an interest in becoming approved bodies are widely recognised and respected in the field of arbitration, and they are experienced in assessing arbitrators through their accreditation services. That will ensure that we do not unfairly exclude arbitrators by setting in legislation definitions that are too narrow.
However, we recognise that we should not take a one-size-fits-all approach to arbitration, so the Bill provides that arbitration bodies have the flexibility to appoint arbitrators to cases that match their specific qualifications and experience. Furthermore, if an arbitrator does not possess the qualifications required for a particular case, the arbitration body is required to remove them from that case.
The Bill already ensures that arbitration is carried out by suitably qualified and experienced arbitrators. I hope that hon. Members agree that the arbitration bodies are best placed to make this judgment, notwithstanding the clear evidence that we heard of the kind of experiences that we, landlords and tenants expect of arbitrators. I therefore request that the amendment be withdrawn.
Ruth Cadbury
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 8 sets out the statutory functions of arbitration bodies approved by the Secretary of State to carry out arbitration services. It is key to enabling the arbitration market to deliver the system that is required to efficiently resolve outstanding rent disputes. The arbitration bodies will be given powers to appoint arbitrators to a case, as well as to remove them if they are deemed unsuitable on certain grounds. The clause also provides that arbitration bodies will oversee cases and set fees for arbitration services, subject to any cap on fees that may be imposed by the Secretary of State under clause 19, as well as dealing with financial arrangements.
If grounds for removal exist, an arbitration body must remove the arbitrator from the case—for example if an arbitrator does not possess the qualifications required for the arbitration. That is integral to the delivery of the arbitration process. It also provides for reporting, to enable the Secretary of State to have clear sight of the progress of the arbitration process.
Ruth Cadbury
We have no further amendments to the clause, and we have no further comments to make at this point.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Period for making a reference to arbitration
Ruth Cadbury
I beg to move amendment 2, in clause 9, page 7, line 11, leave out subsection (4) and insert—
“(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This amendment would require regulations made under this section to be subject to the affirmative procedure.
The Chair
With this it will be convenient to discuss amendment 3, in clause 9, page 7, line 12, at end insert—
“(4A) The Secretary of State must prepare and publish a report giving reasons for any extension of the period mentioned in subsection (2) and must lay a copy before Parliament.”
This amendment would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration.
Ruth Cadbury
Amendment 2 covers a much wider issue around trust and transparency: the way in which Parliament has full, open access to decision making. The amendment is similar to amendments that Labour colleagues have introduced before in other pieces of legislation that we have otherwise been supportive of on the whole, as we are of this Bill.
Amendment 2 would require regulations to be made according to the affirmative procedure. It would ensure that Parliament can fully scrutinise the extension of the existing six-month period in which businesses can go through the arbitration process. The Bill requires regulations to go through the negative procedure, which means that they would be discussed or stopped only if there was an objection. Our amendment would make the procedure affirmative, meaning that Parliament would have to approve them.
In recent days, we have seen that the Government’s approach to public health issues and, indeed, to the wider impacts of coronavirus can change rapidly, and it is crucial that MPs and parliamentarians are able to debate, scrutinise and assess such changes. Our amendment therefore calls for both Houses to approve any extension to the arbitration process, to ensure that it works for businesses and landlords across the country.
Paul Scully
I thank the hon. Lady for her summary of the amendments. The Bill aims to resolve protected rent debt quickly and support commercial tenants and landlords to return to normal operations as soon as possible. We encourage landlords and tenants to resolve unpaid debt between themselves. The arbitration process is designed to allow for negotiation and for the parties to make considered proposals to lead to appropriate outcomes.
The timeframe for making references to arbitration will encourage a speedy resolution of the disputes in scope, and is meant to deal with a particular set of circumstances at a critical time. We believe that six months is enough time to allow eligible tenants and landlords to apply for the arbitration process. However, if there is evidence that the six-month period is not enough, the Secretary of State can, using the power in clause 9, extend it to allow more time for the eligible parties to apply. Any evidence that the power is needed is unlikely to become available until well after the Bill comes into force; it may not become apparent that such an extension is necessary until close to the expiry of the six-month period. The length of an extension would depend on the circumstances, but would be based on feedback from stakeholders. It would be only for as long as is absolutely necessary.
I appreciate the interest in transparency shown by the hon. Member for Brentford and Isleworth, and I reassure her that the decision to extend would be based solely on evidence from tenants, landlords and arbitrators. Officials will continue to monitor the process if issues with the time period arise.
Regulations to extend the application period may need to be made relatively quickly in order to react, so it is important that the Bill remains flexible in case more time is needed. It remains important for the Government to work with Parliament. None the less, we want to make sure that the process can be resolved as quickly as possible, without any undue delay or concern that landlords and tenants will not have their case heard as quickly as possible. We therefore consider the negative procedure to be appropriate in the circumstances. I welcome the hon. Lady’s contribution, but I hope in this instance that she will withdraw the amendments.
Ruth Cadbury
If the two amendments are being considered together, I would also like to speak specifically to the other one.
The Chair
I said at the beginning that we had come to amendment 2, with which it would be convenient to debate amendment 3. If the hon. Lady would like to include her remarks on amendment 3 when summing up, I am happy to allow that.
Ruth Cadbury
Thank you, Mrs Murray, that is very helpful. Amendment 3 would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration. Like amendment 2, amendment 3 is crucial in improving and expanding the scope of parliamentary scrutiny. It calls for the Government to publish a report setting out the reasons given for any extension of the existing six-month arbitration process.
As we said on Second Reading, it is crucial that the Bill has the support of businesses and that the arbitration process is transparent and open, which should include any extension of the period in which rent arrears can be brought into arbitration. Our amendment therefore calls for the Secretary of State to publish and lay before Parliament the reasons for extending the arbitration process.
Paul Scully
I hope that, in my opening remarks, I made clear our reasons for asking the hon. Lady to withdraw the amendment.
Ruth Cadbury
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
The purpose of the clause is to specify the time limit for which arbitration under the Bill will be available. It will encourage landlords and tenants to engage and attempt to resolve in-scope disputes in a timely manner. There is a power for the Secretary of State to extend the time limit if it is required. The arbitration process should be seen as a last resort and our strong preference is for landlords and tenants to negotiate using the updated code of practice.
Before either party can make a reference to arbitration, on notification by the applicant that they intend to make a reference, the parties are expected to offer solutions with supporting evidence to try and resolve the matter, meaning arbitration should be a last resort. Under the Bill, parties will have six months to make a reference to arbitration to give them time to go through those steps. The Secretary of State has the power to request reports from approved arbitration bodies to enable him to monitor their progress and also has a delegated power in the clause to extend the six-month period, should monitoring suggest that it is necessary to do so.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Requirements for making a reference to arbitration
Question proposed, That the clause stand part of the Bill.
Paul Scully
A party that wants to take their dispute to arbitration must first go through a process of notifying the other party and allowing the other party to respond. The clause sets out the timings and the steps to take. The intent is to give both parties enough time through a period of up to at least 28 days from the date of initial notification to try and reach an agreement pre-arbitration.
Arbitration provided by the Bill cannot be used where tenants are subject to or debt is under certain legal compromises or arrangements for debt recovery. That is because the Bill aims to focus specifically on unagreed rent arrears and to encourage negotiations where possible.
Ruth Cadbury
I thank the Minister. Again, we do not propose to amend or oppose the clause. I appreciate that the Government have put these measures in place for a reason and we welcome them. I would like to know whether the Government have made any assessment of how many businesses would be unable to go to arbitration on the basis of these limits.
Paul Scully
I am not aware that we have made a specific assessment. We have made assessments on the businesses that come within scope and would otherwise go to arbitration because they have not been able to have a satisfactory discussion beforehand. These positions allow parties time to reflect on whether they can reach that settlement in a fair and open process.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Proposals for resolving the matter of relief from payment
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause requires the party making a reference to arbitration to include with that reference a formal proposal and supporting evidence. The other party may respond with their own proposal, accompanied by supporting evidence, within 14 days of receiving the applicant’s. The process therefore gives each party the opportunity to review the other’s proposals. The parties then have 28 days from their initial formal proposal to submit a revised proposal accompanied by further supporting evidence—or longer if both parties or the arbitrator agree to allow more time, giving each party time to reflect and respond. That is important, because it facilitates the possibility of a settlement occurring early on in the arbitration process once a reference to arbitration is made. It supports our aim of giving businesses certainty as soon as possible. I commend the clause to the Committee.
Ruth Cadbury
I thank the Minister. Again, we do not intend to amend or oppose the clause at this point. We support the proposals for resolving the matter of relief, because, as the Minister has said, it allows tenants and landlords to reach an agreement. We know from stakeholder feedback that this process is welcomed by businesses. It will provide relief, especially because of the block on any court action that it provides. We also welcome it because it allows both parties to make proposals to tackle debt relief. Equally, we want to make sure that there is a level playing field in the arbitration process. We do not want larger companies to be able to muscle through the arbitration process because they have greater levels of resources—both financial and in levels of expertise and so on.
Although we welcome the fact that the process can be extended with agreement, there is an equal chance that, if the process extends and extends even further, it could act as an extra burden on smaller businesses. That is why we hope the Government will look into the accessibility and ease with which small businesses, in particular, can engage in the arbitration process.
Paul Scully
We will continue to work with the arbitration services that have expertise in this area, especially as the measure is based on systems specifically targeted at smaller businesses and smaller disputes.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Written statements
Question proposed, That the clause stand part of the Bill.
Paul Scully
Statements of truth confirm the veracity of written statements submitted to the arbitrator, and they will be required to verify any written statements provided to the arbitrator—whether by one of the parties or another person—that relate to a matter relevant to the arbitration. An unverified written statement can be disregarded by the arbitrator. It is standard practice in arbitration processes to require a written statement to be verified by a statement of truth. That ensures that parties only make written statements that they believe to be true, ensuring that arbitral awards have a sound basis. I urge the Committee to support the clause.
Ruth Cadbury
This is a welcome clause and one that we support. It is vital that statements given to the arbitrator are truthful. That will be crucial when viability is being assessed. Although we have expressed the importance of viable businesses being supported, we appreciate that this is a two-way street, and that businesses need to provide truthful and full information to the arbitrators, as, of course, do landlords. We support the clause.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Ordered, That the Order of the Committee of Tuesday 7 December be amended, in paragraph 1(b), by leaving out “and 2 pm”.—(Craig Whittaker.)
Ordered, That further consideration be now adjourned. —(Craig Whittaker.)
Commercial Rent (Coronavirus) Bill (Third sitting)
Thursday 9th December 2021
(3 years ago)
Public Bill CommitteesRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 View all Commercial Rent (Coronavirus) Bill 2021-22 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 9 December 2021 - (9 Dec 2021)
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee except for the water provided. I encourage Members to wear masks when they are not speaking, in line with Government and House of Commons Commission guidance. Please also give each other and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Hansard colleagues would be grateful if Members emailed their speaking notes to hansardnotes@parliament.uk.
We now begin line-by-line consideration of the Bill. The selection and grouping for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. Please note that decisions on amendments do not take place in the order that they are debated but in the order that they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates, and decisions on new clauses will be taken once we have completed consideration of the existing clauses of the Bill. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking about it that they wish to do so.
Clause 1
Overview
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
It is a pleasure to serve under your chairmanship, Mrs Murray.
Many businesses are still on the long road to recovery following the pandemic, particularly in the sectors that have been hit hardest, such as hospitality and retail. The most recent data indicates that rent collections for this year’s third quarter are much higher than they were for last year’s third quarter, but they are still not at pre-pandemic levels. An estimated total of just under £7 billion of rent was deferred over the pandemic.
Although we have provided an unprecedented package of support to businesses, we have also been clear that we expect landlords and tenants to come together and negotiate. Agreements have been reached for many businesses, but for others negotiations have stalled, leaving rent arrears to build up, which could threaten many of the valued jobs that those businesses provide.
The statutory arbitration process that the Bill introduces should be used as a last resort, where landlords and tenants have been unable to reach their own agreements. For those tenancies, the Bill will ring-fence rent debt accrued during the pandemic by businesses required to close, and set out a process of binding arbitration that will resolve rent disputes and help the market return to business as usual. The Bill will temporarily restrict remedies available to landlords in relation to rent debt built up during the pandemic. To respect the primacy of the landlord-tenant relationship wherever possible, the arbitration process will not be available where legal agreements are reached between landlords and tenants over the payment of a protected rent debt.
I commend the clause to the Committee.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship today, Mrs Murray.
I am grateful to the Minister for his opening remarks, in which he set out why the Bill is needed. Indeed, some of the estimates of the deferred rent debt that has been built up are around £7 billion, with some as high as £9 billion. That is why we called for action earlier this year, so that there was clarity about how some rent disputes would be resolved, and resolved fairly, because we know that the impact of the pandemic is ongoing.
I have concerns that may be outside the scope of the Bill, unless we decide to accept some amendments on Tuesday. In the light of the announcements yesterday and the guidance coming out today, there may need to be a review if there is a risk of further rent arrears if income drops for businesses in the period ahead. So I hope that there will be ways in which we can keep matters under review, in the light of recent developments.
Clause 1 indeed provides an overview of the Bill, and it is in part 1 of the first three short parts. Part 1 is about “Introductory Provisions”, including important definitions; part 2 provides the framework for statutory arbitration between landlords and tenants; and part 3 provides for the ongoing restrictions on “Certain remedies and insolvency arrangements” in relation to protected rent debt.
Importantly, clause 1 also confirms that nothing in the legislation affects the ability of parties to a business tenancy to reach a negotiated settlement outside the arbitration process. That is important because the arbitration process is a backstop; it is a last resort. It is preferable—in terms of time, cost and the relationship between the parties—that they can be supported to reach a negotiated settlement without the need to resort to arbitration.
Labour will continue to encourage landlords and tenants to negotiate settlements, and it is good to see that most of them have already done so; indeed, that was an important part of the feedback from witnesses this week. It is a sign that most commercial landlords and tenants have worked closely together to get through the crisis, and I pay tribute to them for doing that, because it is a recognition that we have all been in this together and that everybody needs to play their part in bringing flexibility where it is needed.
UK Hospitality estimated that around 60% of its members reached agreement with their landlords on any outstanding debt, but there is an estimate that around one in five have yet to reach a negotiated settlement. Perhaps some settlement discussions are still in progress.
We support clause 1 and we will vote for it to stand part of the Bill.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
“Rent” and “business tenancy”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause provides clarity with regard to which payments owed by a business tenant to their landlord under their tenancy contract will be considered to be rent for the purpose of the Bill. Rent includes contractual payments owed by the tenant to the landlord for occupation and use of the property, as well as payments collectively described as service charges and interest on any unpaid amount. Including both service charges and interest on any unpaid amount within the definition of rent will allow the arbitrator to consider a broad range of arrears that may be owed by the tenant to the landlord, rather than only the payments for occupation and use. The arbitrator will then consider whether relief should be awarded in respect of some or all of the amount owed.
The definition of business tenancy in the Bill is broadly consistent with the definition of business tenancy under section 82 of the Coronavirus Act 2020, which served to temporarily prevent landlords from evicting tenants. However, the Bill focuses on business tenants and their immediate landlords.
I commend the clause to the Committee.
Seema Malhotra
I thank the Minister for his opening comments on the clause.
Clause 2 defines the key terms that are central to the operation of this legislation, notably rent and business tenancy. Rent is stated to include the cost of using the premises and service charges, as well as interest on unpaid amounts relating to either, with VAT included. We have no concerns about this definition; it seems sensible and we hope that it is widely accepted.
Business tenancy means a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies. That Act applies to any tenancy where property is or includes premises that are occupied for the purposes of business. The Minister will have heard the concerns of the British Retail Consortium, raised on Tuesday, about the definition of the business tenancy. It has concerns that any tenancy contracted out of the 1954 Act would fall outside the scope of these protections. Will the Minister confirm the assurances that he gave the British Retail Consortium on that point?
As Kate Nicholls of UK Hospitality said in her evidence, also on Tuesday:
“It is important that this piece of legislation sits within the existing canon of property law”––[Official Report, Commercial Rent (Coronavirus) Public Bill Committee, 7 December 2021; c. 5, Q3.]
and that definitions are consistent with that existing canon. Subject to meeting the BRC’s concern about business tenancies, the definitions in clause 2 would in our view meet that test. I look forward to the Minister’s response. We support the definitions and will support the clause.
Paul Scully
Yes, I can confirm that tenancies to which part 2 of the 1954 Act applies are covered by the Bill, including where parties have agreed to exclude certain provisions of part 2 of that Act. I should also say, in reply to the hon. Lady’s earlier comments about future powers and what would happen in another coronavirus situation. The Bill does indeed contain a power that allows the provisions to be applied again in the event of future closure.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
“Protected rent debt”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause defines “protected rent debt”, a key concept of the Bill, so that landlords and tenants have certainty about what is in the scope of arbitration. The definition for protected rent includes rent that is owed to the landlord under the tenancy if the tenancy was adversely affected by coronavirus, and excludes rent that the tenant owed to the landlord either before the pandemic or after businesses were allowed to open for business. That is in line with the Government’s expectation that the market should now return to normal, with the contractual arrangements once again adhered to.
The clause also states that if all or part of the protected rent debt was satisfied by the landlord by drawing down from the tenancy deposit, the sum that was paid for the deposit should be considered protected rent debt and should still be considered unpaid.
Seema Malhotra
I thank the Minister for his opening comments on clause 3, which defines “protected rent debt”. Rent is protected if the tenant was adversely affected by coronavirus within the meaning of clause 4 and the rent is attributable to a period that is protected within the meaning of clause 5.
Subsection (3) states that rent consisting of interest due on an unpaid amount is
“attributable to the same period of occupation…as that unpaid amount.”
That means that if a tenant is paying interest on rent due, the interest is also considered to be from the same period of occupancy as the rent. Subsection (5) sets out that if rent due is only partly attributable to a period of occupation, only the rent due that is attributable to that period qualifies as protected rent. That means that if there is rent due that is attributable to occupation by the tenant both outside and within the protected rent period, only that which was within the protected period is regarded as protected rent. It is likely there will be some confusion around that. Perhaps the Minister intends to have clear examples and guidance so that those who use the legislation will be clear about how they need to do their calculations.
Clause 3 does clarify what is meant by protected rent debt. We support the definition and will vote for the clause.
Paul Scully
Indeed, guidance will be really important to ensure that arbitral services and bodies have all the information that they need to make a correct definition. As the hon. Lady says, including interest is important, otherwise the burden of meeting interest under punitive contractual rates would defeat the object of the Bill.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4
“Adversely affected by coronavirus”
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 4 is essential. It establishes which businesses can access arbitration and the Bill’s temporary moratorium on other measures. We appreciate that the pandemic has been difficult across the economy, but we are seeking to target this measure at those businesses most directly affected so that we can resolve cases quickly, providing businesses with certainty while protecting jobs in our most vulnerable sectors, such as hospitality, retail and leisure. That is important not only for eligible businesses, but for the individuals who contribute to them.
Clause 4 provides that a business was adversely affected by coronavirus, and therefore its rent may be in scope, if it was required by regulations to close all or part of its business or premises for any of the time while closure requirements were in place: from 21 March 2020 until 18 July 2021 for England, or until 7 August 2021 for Wales. If a business was subject to a closure requirement for any period within those times, it meets the test, regardless of whether it was allowed to carry out other limited activities such as takeaways. Without that targeted approach, we could see rent issues from the pandemic unresolved for a significant amount of time, so I urge the Committee to support the clause.
Seema Malhotra
I thank the Minister for his remarks. As he described, clause 4 clarifies what is meant by businesses “adversely affected by coronavirus”. It states that a business can be categorised as adversely affected if part or all of it was obliged to close due to coronavirus restrictions during the relevant period. It also states that any specific limited activities that the business was able to take part in during its forced closure can be disregarded as immaterial for the purposes of the Bill. We think that is very important, otherwise we will have situations in which one side or the other says that a business is not eligible for the scheme for the purposes of arbitration, so we support having that clarity in the Bill.
The clause also defines the relevant period as 21 March 2020 to 18 July 2021 for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. We do not object to those dates—there are clear reasons why they have been chosen, given that Government policy changed around those times. My only concern is that the tail end of recovery has been slower in some sectors, such as aviation, travel and tourism, than in others. The dates on which some businesses were able to reopen and start to do much better did not apply in the same way to all businesses in all sectors.
Although we have not tabled any amendments to those dates and we support clause 4, it will be important for the Minister to keep this Bill under review, bearing in mind that there has not been an equal recovery for businesses. If concerns are raised with him about businesses that may or may not be eligible, but have been impacted by coronavirus closures or consequences, it is important that some amendments could be made in due course, should they be required.
Paul Scully
I think we all acknowledge the fact that this is not a perfect science: some businesses that were suffering through the lockdown will continue to have a slow recovery. This is a focused Bill dealing with a particular kind of ring-fenced debt, and we want to make sure that we encapsulate this issue, so that we do not make the Bill and the process of arbitration too big in a way that benefits nobody. I think the Bill is proportionate, and will have the right effect.
In terms of a long tail of recovery, we obviously need to look at the support from a holistic point of view, and at the additional measures that we have put in place to support businesses, including the sectors that the hon. Lady mentioned. Importantly, we will continue to flex. I have been on calls today, and over the past few days—especially with plan B being announced—with representative organisations, and people from hospitality in particular, which is hard pressed. We will continue to listen and respond.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
“Protected period”
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 5 sets out the protected period from which rent can be referred to arbitration. The Government are committed to supporting landlords and tenants to resolve rent that has built up. For the arbitration scheme to do so, the parties and the arbitrator must be clear on from which periods rent can be referred to arbitration. Closure requirements and other restrictions were lifted at different times for different types of businesses as part of the appropriate road map out of restrictions, and the reducing of alert levels. That is why the protected period runs from the start of closure requirements until the last day that a business was either required to close or subject to another specific restriction on how it could operate or use its premises.
The period is not affected by general restrictions that applied to all businesses and requirements to give or display information, such as requirements to display information about the wearing of face masks, but where particular types of businesses were subject to a restriction under coronavirus regulations, the period takes account of that restriction. It is intended to take a clear and appropriate approach to the rent debt that may be referred to the arbitrator. The arbitrator will not necessarily award relief in respect of all debt relating to the period, as the appropriate relief will depend on the circumstances, but I urge the Committee to support the clause.
Seema Malhotra
I thank the Minister for his remarks. Clause 5 defines what is meant by the protected period and specific coronavirus restrictions for the purposes of the Bill. He has outlined the dates for the protected period, and that a specific coronavirus restriction means any requirement other than a closure requirement that regulated any aspect of the way that a business was to be carried on. Requirements to provide information on premises, or requirements that applied more generally to businesses, are not included under the specific coronavirus restrictions.
Clearly, as we have discussed, many businesses continued to experience significant covid impacts beyond the end of the protected period. However, we recognise the need to strike the right balance between the interests of landlords and tenants, and therefore the need to limit the protected period to one that is clear about how arbitrators will look at and assess claims and that is clearly aligned with policy. I hope that the Minister will have heard the reflections of stakeholders, including Andrew Goodacre from the British Independent Retailers Association, that businesses that were not forced to close—essential businesses—may still have suffered significant economic consequences.
We want to ensure that there is fairness, and that all viable businesses that suffered an impact will be supported to continue through the ongoing recovery. Overall, we support the measures and definitions in clause 5, and will support it standing part.
Paul Scully
The hon. Lady is right: this is a focused Bill, looking at the first period of the pandemic. However, as I have said, we will continue to listen to various sectors and work with them to ensure that we can recover equally.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
“The matter of relief from payment”
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause sets out the two questions that the arbitrator must decide before considering what, if any, relief should be given to the tenant. That is important because it ensures that arbitration capacity and relief are targeted at those who need it most, namely those whose rent has been impacted by closures and restrictions within the ring-fenced period. The first question is whether there is any protected rent debt. The second is whether the tenant should be given any relief in respect of the payment of that debt and, if so, what type of relief.
The clause also sets out clearly the types of relief that an arbitrator can award in respect of protected rent debt: writing off part of or all of the debt; giving more time to repay the debt; or reducing or writing off any interest on the debt. Setting those clear boundaries will help arbitrators to reach awards quickly and provide adversely impacted businesses with the certainty they need to recover from the pandemic.
Seema Malhotra
I thank the Minister for his opening remarks. Clause 6 clarifies references to the matter of relief from payment—that is, the subject to be dealt with by an arbitrator under the legislation. It relates to whether there is protected rent debt and, if so, whether the tenant should be given relief from the payment of that debt. The Minister has outlined what that means but, to summarise again, it is the writing off of the whole or part of the debt, giving time to pay the whole or part of the debt, and reducing any interest payable on the debt. It is right that arbitrators are given the flexibility to provide for a form of relief that is appropriate for the specific circumstances of a case. Indeed, one or more forms of the relief may be appropriate depending on the circumstances of the landlord and the tenant. We support these measures and clause 6 standing part of the Bill.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Approval of arbitration bodies
Question proposed, That the clause stand part of the Bill.
Paul Scully
The arbitration scheme will be delivered by independent arbitration bodies. The clause gives the Secretary of State the power to approve arbitration bodies for that purpose. Arbitration bodies will have to demonstrate that they are suitable before being approved. Further information on what constitutes “suitable” and how to become an approved body will be published on gov.uk.
The Secretary of State can also withdraw approval status if the body is no longer suitable to deliver arbitration services. The Secretary of State must notify the body if that is the case, and the body will have an opportunity to make representations. Under the clause, a list of approved arbitration bodies must be maintained and published by the Secretary of State, enabling parties to a dispute to know to whom an application for an arbitration may be made. The clause is therefore crucial to enable a high-quality, independent and accessible service to be delivered to landlords and tenants.
Ruth Cadbury (Brentford and Isleworth) (Lab)
It is a pleasure to serve under your chairship, Mrs Murray. When the Government create a dispute resolution process, as the Bill does, it goes without saying that there needs to be arbitration bodies. We naturally support the clause—although we have a couple of amendments coming up—as it is inevitable and clear. However, I want to address a point in subsection (7), which states:
“The Secretary of State must maintain and publish a list of approved arbitration bodies.”
We hope that the list will be easily discoverable and regularly updated. On subsection (6), we hope that the Government will ensure that the process of removing arbitration bodies that are not up to scratch is done transparently and speedily. It is absolutely essential that both parties to arbitration—landlords and businesses—have confidence, that the process is fair, and that arbitrators are trusted and appropriately experienced. Although we seek Government reassurance on that, we will support clause 7.
Paul Scully
I reassure the hon. Lady that we want to ensure that everything is transparent and easy to find. People are hard pressed and have to contend with the survival of their businesses, so it is really important that we give them as much information as possible. Indeed, we want to ensure that, should we be required to remove any arbitration services from the list, we do so in an open and speedy way, not least because we want to get through the process as quickly as possible—there is no point in dragging it out—for the benefit of landlords and tenants.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Functions of approved arbitration bodies
Ruth Cadbury
I rise to speak to the amendment, which seeks to clarify the definition of “debt claims”, including claims against guarantors. Currently, “debt claim” has the same meaning as in paragraph (2) of schedule 2, and “tenant” includes a person who guarantees the obligations of the tenant under a business tenancy.
The purpose of the amendment is to provide extra clarity on whether the protections given against county court action are also given to the guarantors of tenancies. We do not want to create a back door by which tenants are protected from enforcement but the guarantors are still liable. It is crucial that the Government ensure that guarantors of tenants are also protected against debt claims during the prescribed six-month period. We do not want a common-sense measure to be circumvented by landlords going after guarantors with no limit.
Ruth Cadbury
I was speaking to the wrong amendment, Mrs Murray. I apologise to Committee members and staff.
I beg to move amendment 1, in clause 8, page 6, line 25, at end insert—
“(2A) The Secretary of State must by regulation specify the meaning of ‘qualifications’ and ‘experience’ for the purpose of this section.”
This amendment would require the Secretary of State to specify by regulation to meaning of qualifications and experience in section 8.
Amendment 1 would require the Secretary of State to specify by regulation the meaning of “qualifications” and “experience”. A fair arbitration process is crucial for businesses, landlords and all involved to have faith in the new system. The Bill states that there is a list of approved arbitrators who are appointed
“by virtue of their qualifications or experience”.
Our straightforward amendment would require the Secretary of State to specify just what those qualifications and experience should be.
During the Committee’s first oral evidence session, we had witnesses who focused on the importance of financial qualifications for the arbitration, because most cases will focus on the financial situation for the parties. One witness had an alternative view, however, and suggested in their written evidence that arbitrators should be legally qualified due to the complex nature of some cases and the need for a fair, transparent process.
When the Bill was introduced, we said that it was crucial that businesses have faith in the whole of the arbitration process. Equally, we said that it was important that the process is transparent and fair. That is why our amendment would require the Secretary of State to outline just what the necessary qualifications and experience should be. That would reassure all those involved in the process that it is being overseen by trusted and qualified individuals and groups.
Paul Scully
I think that we all agree about the importance of having the right arbitrators in place to carry out this important work. The Bill already contains steps to ensure that arbitrators will have the necessary qualifications and experience. First, the Secretary of State may approve an arbitration body only if it is considered suitable to carry out its required functions. If the Secretary of State considers an arbitration body not to be properly carrying out its functions, including those relating to the assessment of qualifications and experience, the Secretary of State can withdraw approval.
Secondly, the arbitration bodies themselves are required to maintain a list of arbitrators that are suitable to work on cases that fall under the Bill by virtue of their qualifications or experience. It is right for the arbitration bodies, as the experts on this matter, to determine which arbitrators are suitable given their qualifications and experience. Arbitration bodies that have demonstrated an interest in becoming approved bodies are widely recognised and respected in the field of arbitration, and they are experienced in assessing arbitrators through their accreditation services. That will ensure that we do not unfairly exclude arbitrators by setting in legislation definitions that are too narrow.
However, we recognise that we should not take a one-size-fits-all approach to arbitration, so the Bill provides that arbitration bodies have the flexibility to appoint arbitrators to cases that match their specific qualifications and experience. Furthermore, if an arbitrator does not possess the qualifications required for a particular case, the arbitration body is required to remove them from that case.
The Bill already ensures that arbitration is carried out by suitably qualified and experienced arbitrators. I hope that hon. Members agree that the arbitration bodies are best placed to make this judgment, notwithstanding the clear evidence that we heard of the kind of experiences that we, landlords and tenants expect of arbitrators. I therefore request that the amendment be withdrawn.
Ruth Cadbury
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
Clause 8 sets out the statutory functions of arbitration bodies approved by the Secretary of State to carry out arbitration services. It is key to enabling the arbitration market to deliver the system that is required to efficiently resolve outstanding rent disputes. The arbitration bodies will be given powers to appoint arbitrators to a case, as well as to remove them if they are deemed unsuitable on certain grounds. The clause also provides that arbitration bodies will oversee cases and set fees for arbitration services, subject to any cap on fees that may be imposed by the Secretary of State under clause 19, as well as dealing with financial arrangements.
If grounds for removal exist, an arbitration body must remove the arbitrator from the case—for example if an arbitrator does not possess the qualifications required for the arbitration. That is integral to the delivery of the arbitration process. It also provides for reporting, to enable the Secretary of State to have clear sight of the progress of the arbitration process.
Ruth Cadbury
We have no further amendments to the clause, and we have no further comments to make at this point.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Period for making a reference to arbitration
Ruth Cadbury
I beg to move amendment 2, in clause 9, page 7, line 11, leave out subsection (4) and insert—
“(4) A statutory instrument containing regulations under subsection (3) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”
This amendment would require regulations made under this section to be subject to the affirmative procedure.
The Chair
With this it will be convenient to discuss amendment 3, in clause 9, page 7, line 12, at end insert—
“(4A) The Secretary of State must prepare and publish a report giving reasons for any extension of the period mentioned in subsection (2) and must lay a copy before Parliament.”
This amendment would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration.
Ruth Cadbury
Amendment 2 covers a much wider issue around trust and transparency: the way in which Parliament has full, open access to decision making. The amendment is similar to amendments that Labour colleagues have introduced before in other pieces of legislation that we have otherwise been supportive of on the whole, as we are of this Bill.
Amendment 2 would require regulations to be made according to the affirmative procedure. It would ensure that Parliament can fully scrutinise the extension of the existing six-month period in which businesses can go through the arbitration process. The Bill requires regulations to go through the negative procedure, which means that they would be discussed or stopped only if there was an objection. Our amendment would make the procedure affirmative, meaning that Parliament would have to approve them.
In recent days, we have seen that the Government’s approach to public health issues and, indeed, to the wider impacts of coronavirus can change rapidly, and it is crucial that MPs and parliamentarians are able to debate, scrutinise and assess such changes. Our amendment therefore calls for both Houses to approve any extension to the arbitration process, to ensure that it works for businesses and landlords across the country.
Paul Scully
I thank the hon. Lady for her summary of the amendments. The Bill aims to resolve protected rent debt quickly and support commercial tenants and landlords to return to normal operations as soon as possible. We encourage landlords and tenants to resolve unpaid debt between themselves. The arbitration process is designed to allow for negotiation and for the parties to make considered proposals to lead to appropriate outcomes.
The timeframe for making references to arbitration will encourage a speedy resolution of the disputes in scope, and is meant to deal with a particular set of circumstances at a critical time. We believe that six months is enough time to allow eligible tenants and landlords to apply for the arbitration process. However, if there is evidence that the six-month period is not enough, the Secretary of State can, using the power in clause 9, extend it to allow more time for the eligible parties to apply. Any evidence that the power is needed is unlikely to become available until well after the Bill comes into force; it may not become apparent that such an extension is necessary until close to the expiry of the six-month period. The length of an extension would depend on the circumstances, but would be based on feedback from stakeholders. It would be only for as long as is absolutely necessary.
I appreciate the interest in transparency shown by the hon. Member for Brentford and Isleworth, and I reassure her that the decision to extend would be based solely on evidence from tenants, landlords and arbitrators. Officials will continue to monitor the process if issues with the time period arise.
Regulations to extend the application period may need to be made relatively quickly in order to react, so it is important that the Bill remains flexible in case more time is needed. It remains important for the Government to work with Parliament. None the less, we want to make sure that the process can be resolved as quickly as possible, without any undue delay or concern that landlords and tenants will not have their case heard as quickly as possible. We therefore consider the negative procedure to be appropriate in the circumstances. I welcome the hon. Lady’s contribution, but I hope in this instance that she will withdraw the amendments.
Ruth Cadbury
If the two amendments are being considered together, I would also like to speak specifically to the other one.
The Chair
I said at the beginning that we had come to amendment 2, with which it would be convenient to debate amendment 3. If the hon. Lady would like to include her remarks on amendment 3 when summing up, I am happy to allow that.
Ruth Cadbury
Thank you, Mrs Murray, that is very helpful. Amendment 3 would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration. Like amendment 2, amendment 3 is crucial in improving and expanding the scope of parliamentary scrutiny. It calls for the Government to publish a report setting out the reasons given for any extension of the existing six-month arbitration process.
As we said on Second Reading, it is crucial that the Bill has the support of businesses and that the arbitration process is transparent and open, which should include any extension of the period in which rent arrears can be brought into arbitration. Our amendment therefore calls for the Secretary of State to publish and lay before Parliament the reasons for extending the arbitration process.
Paul Scully
I hope that, in my opening remarks, I made clear our reasons for asking the hon. Lady to withdraw the amendment.
Ruth Cadbury
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Paul Scully
The purpose of the clause is to specify the time limit for which arbitration under the Bill will be available. It will encourage landlords and tenants to engage and attempt to resolve in-scope disputes in a timely manner. There is a power for the Secretary of State to extend the time limit if it is required. The arbitration process should be seen as a last resort and our strong preference is for landlords and tenants to negotiate using the updated code of practice.
Before either party can make a reference to arbitration, on notification by the applicant that they intend to make a reference, the parties are expected to offer solutions with supporting evidence to try and resolve the matter, meaning arbitration should be a last resort. Under the Bill, parties will have six months to make a reference to arbitration to give them time to go through those steps. The Secretary of State has the power to request reports from approved arbitration bodies to enable him to monitor their progress and also has a delegated power in the clause to extend the six-month period, should monitoring suggest that it is necessary to do so.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Requirements for making a reference to arbitration
Question proposed, That the clause stand part of the Bill.
Paul Scully
A party that wants to take their dispute to arbitration must first go through a process of notifying the other party and allowing the other party to respond. The clause sets out the timings and the steps to take. The intent is to give both parties enough time through a period of up to at least 28 days from the date of initial notification to try and reach an agreement pre-arbitration.
Arbitration provided by the Bill cannot be used where tenants are subject to, or are debtors under, certain legal compromises or arrangements for debt recovery. That is because the Bill aims to focus specifically on unagreed rent arrears and to encourage negotiations where possible.
Ruth Cadbury
I thank the Minister. Again, we do not propose to amend or oppose the clause. I appreciate that the Government have put these measures in place for a reason and we welcome them. I would like to know whether the Government have made any assessment of how many businesses would be unable to go to arbitration on the basis of these limits.
Paul Scully
I am not aware that we have made a specific assessment. We have made assessments on the businesses that come within scope and would otherwise go to arbitration because they have not been able to have a satisfactory discussion beforehand. These positions allow parties time to reflect on whether they can reach that settlement in a fair and open process.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Proposals for resolving the matter of relief from payment
Question proposed, That the clause stand part of the Bill.
Paul Scully
The clause requires the party making a reference to arbitration to include with that reference a formal proposal and supporting evidence. The other party may respond with their own proposal, accompanied by supporting evidence, within 14 days of receiving the applicant’s. The process therefore gives each party the opportunity to review the other’s proposals. The parties then have 28 days from their initial formal proposal to submit a revised proposal accompanied by further supporting evidence—or longer if both parties or the arbitrator agree to allow more time, giving each party time to reflect and respond. That is important, because it facilitates the possibility of a settlement occurring early on in the arbitration process once a reference to arbitration is made. It supports our aim of giving businesses certainty as soon as possible. I commend the clause to the Committee.
Ruth Cadbury
I thank the Minister. Again, we do not intend to amend or oppose the clause at this point. We support the proposals for resolving the matter of relief, because, as the Minister has said, it allows tenants and landlords to reach an agreement. We know from stakeholder feedback that this process is welcomed by businesses. It will provide relief, especially because of the block on any court action that it provides. We also welcome it because it allows both parties to make proposals to tackle debt relief. Equally, we want to make sure that there is a level playing field in the arbitration process. We do not want larger companies to be able to muscle through the arbitration process because they have greater levels of resources—both financial and in levels of expertise and so on.
Although we welcome the fact that the process can be extended with agreement, there is an equal chance that, if the process extends and extends even further, it could act as an extra burden on smaller businesses. That is why we hope the Government will look into the accessibility and ease with which small businesses, in particular, can engage in the arbitration process.
Paul Scully
We will continue to work with the arbitration services that have expertise in this area, especially as the measure is based on systems specifically targeted at smaller businesses and smaller disputes.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Written statements
Question proposed, That the clause stand part of the Bill.
Paul Scully
Statements of truth confirm the veracity of written statements submitted to the arbitrator, and they will be required to verify any written statements provided to the arbitrator—whether by one of the parties or another person—that relate to a matter relevant to the arbitration. An unverified written statement can be disregarded by the arbitrator. It is standard practice in arbitration processes to require a written statement to be verified by a statement of truth. That ensures that parties only make written statements that they believe to be true, ensuring that arbitral awards have a sound basis. I urge the Committee to support the clause.
Ruth Cadbury
This is a welcome clause and one that we support. It is vital that statements given to the arbitrator are truthful. That will be crucial when viability is being assessed. Although we have expressed the importance of viable businesses being supported, we appreciate that this is a two-way street, and that businesses need to provide truthful and full information to the arbitrators, as, of course, do landlords. We support the clause.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Ordered, That the Order of the Committee of Tuesday 7 December be amended, in paragraph 1(b), by leaving out “and 2 pm”.—(Craig Whittaker.)
Ordered, That further consideration be now adjourned. —(Craig Whittaker.)