Commercial Rent (Coronavirus) Bill

Earl of Lytton Excerpts

Committee stage
Thursday 10th February 2022 Grand Committee

[The Minister of State, Department for Business, Energy and Industrial Strategy and Department for International Trade (Lord Grimstone of Boscobel) (Con)]

My Lords, it is a pleasure to debate this important Bill in Grand Committee. I would first like to speak to a group of technical amendments tabled in my name, starting with Amendment 1 to Clause 4. This clause is vital to the Bill. It sets out what is meant by a business being “adversely affected by coronavirus”, with certain rent debts under such businesses’ tenancies being in scope for arbitration. Essentially, businesses or premises that were required by regulations to close during a specified period meet the test. Subsection (3) provides important clarity that a requirement to close at particular times is a closure requirement. Amendment 1 ensures that this provision applies in relation to closure of either premises or businesses, or parts of premises or businesses. I am sure noble Lords will agree that this minor amendment produces important clarification.

Turning to Amendment 4, arbitration under the Bill will provide a legally binding solution to unpaid commercial rent from the pandemic. This is important to give certainty and enable parties to return to normal contractual relations. If a tenant is awarded relief, such as a reduction in the protected rent they must pay, they should not have liability for the rest of the original debt. If a guarantor or former tenant ultimately pays the protected rent following an arbitral award, they should be required to pay only the sum required by the award. This should be the case whether, technically, a guarantee or an indemnity has been provided. Amendment 4 expressly sets out those effects of an award. This is intended to give clarity, as requested in a comment in written evidence in the other place. I am grateful to all those who took the time to give their feedback on the technicalities of the Bill. I am pleased to propose this additional clarity through Amendment 4.

Finally, I shall address Amendments 11 and 12. Schedule 2 contains a provision specifying that the Bill’s moratorium and related provisions on debt claims apply both to tenants and anyone who guarantees the tenant’s obligation. I am sure noble Lords will agree that this is important to ensure that the tenant has a genuine opportunity to access arbitration. Amendment 11 ensures that this provision’s protection applies to former tenants who may be liable for unpaid rent under a business tenancy, whether or not they have entered into an authorised guarantee agreement. Amendment 11 also clarifies that the provision applies whether, technically, a guarantee or indemnity has been provided. This amendment addresses a helpful comment made in written evidence in the other place.

Amendment 12 has the same effect as Amendment 11, but applies to Schedule 3’s moratorium and related provisions on winding-up petitions, bankruptcy orders and petitions.

I hope noble Lords will agree that these technical amendments provide useful clarity. I commend them to the Committee and I beg to move.

[The Earl of Lytton (CB)]

My Lords, far be it from me to delay any part of this important Bill, but I would like to be clear about the Minister’s insertion of “businesses or premises”. There does not necessarily seem to be a direct alignment between the two terms. For instance, is the closure of the business inescapably the product of a prohibition, as opposed to something that is advisory? I refer back to the great debate over whether something was guidance or mandatory. It seems to me that we could be looking at businesses with subsidiary operations and so on. If we are not careful, something that affects one part of a business but not the particular part we are talking about, namely the rent on particular premises, would not necessarily align. I would be grateful if the Minister could clarify what is intended there.

[Lord Fox (LD)]

My Lords, fools rush in where angels fear to tread—I shall try to speak briefly. I welcome the fact that the Minister has been flexible and responded to points raised in the other House. Government Amendment 4 is a really good thing, but I have the same question: is this guidance or a mandatory process for the arbitrators? My understanding is that, if a tenant is able to reach a settlement through this process, that tenant no longer carries the stain of the unpaid element of the arbitration process. That therefore means that this would not stand against their credit rating and I wonder whether the Government have considered how this might not filter through into the credit rating system. As I am sure the Minister knows, the credit rating system tends to make life very difficult if you get on the wrong side of it. Some clarity on that would be really helpful.

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[The Earl of Lytton (CB)]

My Lords, I shall make a few general comments about this group, which I certainly relate to. The Minister will doubtless have seen the item I sent in the past day or so from the Property Litigation Association, which I copied to a number of other noble Lords, about its concerns over the geometry of the arbitration process. With regard to the number of arbitrations, a matter raised by the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, the final quantum of those willing to participate will not be known until the Bill and any regulations have been finalised, so willingness to participate may well depend on what is set out in them, what happens about any caps and proportionality relating to costs in the arbitration.

On the costs in the arbitration, my limited experience suggests that the process is capable of being gamed with bad behaviours referred to in an email I had from the property industry and brinkmanship as a predetermined tactic. Given that arbitration is not an inherently cheap process in such circumstances, I wonder what safeguards there are against, for instance, a bully-boy multiple having a go at a series of small landlords, a not unheard of situation. Unfortunately, the British Property Federation, which represents larger landlords, does not have data on what the impact is. I will be very interested to know whether there is any data.

I have concerns about arbitrator discretion. As I understand it, under the provisions of Arbitration Act 1996 the parameters of the arbitrator’s decision-making function are that he has to decide on one or other of the two cases before him. He is not in an inquisitorial position to try to fillet out bits of one and insert them in bits of the other, so when it is a question of what interest rate will be applied, it will be a matter of what is presented to him or her as arbitrator. If there is to be some change in this non-inquisitorial function of arbitrators—I am not suggesting that there could or should be—I can see that, if we are talking about the interests of justice rather than the much vaunted justice of Solomon, we might wish to review what is happening.

On the question of arbitration awards, again, my understanding is that these are normally private, not public, occasions. To the extent that it is proposed that the outcomes of those should be relaxed, I should like to know what revised terms, guidance or direction will follow. That might well have an impact—going back to the first point I made—on those who are already trained arbitrators who might wish to participate in this scheme and may regard the matter as a sufficiently aberrant novelty not to want to participate. I see this matter as a somewhat circular approach and would very much like clarification because I want the Bill to work in practice.

[Lord Fox (LD)]

I hope it is order for me to ask if the noble Lord agrees with me that the so-called bully-boy tenants that the Minister described are going about their bullying within the current system? How much more does this system facilitate their ability to bully or otherwise than the current system, given that we have seen high-street multiples hold their landlords to ransom without this legislation? Why would this legislation make it any easier for them to do that?

[The Earl of Lytton (CB)]

My Lords, the noble Lord asked a pertinent question and the short answer goes back to my earlier intervention. The impact on business and on premises are two separate things. Those are being coalesced into what has happened in terms of non-payment of rent and a build-up of arrears. All I would say is that it is just another factor that adds into a range of factors that he rightly points out are already in play. It adds to the complexity.

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I hope that I have reassured noble Lords on the Bill’s measures regarding interest on protected rent debt. I do not believe that further intervention is necessary and therefore I ask the noble Lord, Lord Fox, not to move his amendment.

[The Earl of Lytton (CB)]

Perhaps I may pick up on a couple of points that the Minister made. It appears that he envisages that the arbitrator will have to use quite a lot of his own discretion. In my way of thinking, that does not fall under the Arbitration Act 1996 and is, in fact, an adjudication process of a rather different nature. He is probably not in a position to answer that right now, and if he would write to me, that would be fine. However, I worry that the way in which the Government see arbitration here is irregular in terms of what most people would understand as the strictures of arbitration.

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank the noble Earl for his intervention. The best answer I can give is that it has been fully discussed with the arbitral bodies whether this is something that they feel the arbitrators they are responsible for can do. I have had complete reassurance on this point, but I will consider it again and write to the noble Earl.