Commercial Rent (Coronavirus) Bill (First sitting)

Debate between Seema Malhotra and Peter Dowd

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Peter Dowd (Bootle) (Lab)]

Q An early-day motion tabled on 27 April 2020 expressed concern—I will not go into the details—about some large pub companies charging rents. You can have a look at it after the meeting. Partly in relation to that, I just want to get a feel of the differences you may have seen between small and large tenant and landlord businesses and how they have handled rent arrears. Have you seen any differences at all?

Kate Nicholls: If you look at the pub-owning businesses and the tied pub companies, there has been a far greater degree of forgiveness of rent among those businesses. It might not be 100% for all of them, but significant rent concessions have been granted throughout the periods of closure, and immediately granted. There has also been a greater willingness to defer rent, allowing rent debt to be accrued and rescheduled over a longer period of time.

If you look at the commercial sector, there has been a variety of different approaches, and there is not anything that really reflects the size of landlord or of tenant businesses in terms of a willingness to negotiate and to reach agreement. Some very small landlord companies have been very willing to give rent holidays, concessions and deferments, and some large commercial companies have been very difficult and intransigent in coming to the table and negotiating, and are taking further enforcement action. It is less to do with the size; it is more the nature of the landlord that has caused the biggest challenges, and the ones that we have found taking enforcement action tend to have been the larger commercial landlords, who have taken a more robust line.

[Seema Malhotra]

Q Could I ask your views—perhaps I will start with Mr Curran—about the 10 November cut-off? We have had some evidence suggesting that there are landlords who are choosing not to engage and are ignoring the code, and who have applied for court order judgments for full arrears to be paid. Do you have a view about whether the Bill should treat all claims equally, whether they were issued pre or post 10 November, and have you seen in practice behaviour that could end up getting around the protections that the legislation is intended to bring in?

Dominic Curran: Thank you very much for asking that. That is a really important issue for our members. We have been asking for action on county court judgments and High Court judgments since October last year. We are very pleased that the Government listened and took account of our concerns to the extent that it was announced alongside the Bill that there would be no ability for landlords to pursue court processes for rent arrears after 10 November, when the Bill was introduced. Unfortunately, that means that any landlord who started those proceedings before 10 November is now in a more advantageous position than any landlord who was perhaps negotiating in line with the code and taking a more reasonable approach with their tenants.

We have the slightly perverse situation that the “more aggressive” landlords are actually better off now than those who might have been taking a longer, more reasonable and more timely approach. I do not see why it should be impossible for there to be a direction to courts to stay any court hearing—county court or High Court—for rent arrears pending the outcome of any arbitration process, or the period in which you could make an arbitration process after the Bill gets Royal Assent. I do not see why it is right that those landlords who have been more aggressive are able to carry on their approach.

We saw that problem early on in the process. The Government rightly and laudably made it effectively impossible in England for landlords to take properties back, to seize goods to the value of the debt, and to effectively start the process of winding up a tenant. That was the rent protection moratorium, which was very welcome and was extended, but it left, as we have been saying since October last year, a gap in the ringfence that unfortunately some landlords sought to exploit very early on. Landlords’ lawyers were sending tenants letters demanding rent arrears, and they could effectively impose the costs of that process on to the tenant.

The tenant was therefore liable for not only the rent arrears and any interest due but their landlords’ lawyers costs, which some suggested might have been slightly inflated, as well as their own legal costs in defending themselves. One member said to me, “It’s a bit like a water running downhill; it will always find a way.” That was the situation with CCJs. While it is fantastic that there has been recognition of that loophole, unfortunately it applies only from 10 November. Any CCJ that had not reached a final decision but was in train in the courts should be stayed pending the outcome of the arbitration process.

--- Later in debate ---

[Peter Dowd]

Q We all know of circumstances in which tenants and landlords may have played the game; frankly, it would be naive to believe otherwise. In that regard, we are in exceptional circumstances. Members here today are supposed to be wearing masks, for example; we have rules in the House, but people ignore them. We are all trying to play the game in this sort of situation. We are all trying to be responsible.

There is an issue about landlords. I think you accepted that landlords agree with the principle that both landlords and tenants might have to share the burden of rent arrears that built up during the period of coronavirus restrictions, in the light of the examination of evidence. Do you accept the principle that there may have to be a sharing of the loss for both the tenant and the landlord? Unlike Government Members, I do not think that this is a laughing matter.

Astrid Cruickshank: May I answer that? Our tenants have had varying experiences throughout the pandemic, and some have made more profit during covid than they did the year before, which is down to their ingenuity—pivoting their business and moving more online. I have had at least five tenants file accounts with Companies House that show a higher profit in the first year of covid than the year before. In such a case, there is no loss to share.

Our tenants in hospitality and the gyms that we own have clearly made losses. We have restructured the leases in all such cases. We have put more money into our entities so that we could give them some rent free to help them through the lockdown. We extended the lease, got a break dropped or got some kind of quid pro quo.

Melanie Leech: In my experience, most larger landlords have been working to a sort of grid. They have tried to look at each of their tenants and see the position they are in, and they have prioritised support to help the most needy. The most support has been given to smaller business, independent businesses and businesses that do not have strong financial backing; it has been given overwhelmingly to the hospitality sector, because everyone has recognised that the majority of those businesses do not have the kind of alternative routes that Ms Cruickshank was just talking about. Millions of pounds have been given in rent write-offs already, as reflected in the data that I referenced at the start.

Forgive me if I was not clear in what I said; let me come back to my point. We believe that those tenants who can afford to pay their rent or who cannot demonstrate need should pay their rent in full. Tenants who can demonstrate significant impact on their businesses and have no way of paying should get support from landlords who can afford to give it. We absolutely believe in that principle, because we believe that property owners and their tenants are economic partners and they should be working together.

It is not, by the way, in a property owner’s interest to either evict a tenant or have a tenant go bust if they believe they are a viable tenant, because an empty building is generating no rent at all—whether it is a debt or whether it is being paid. It becomes a business rates liability that the property owner then has to pay. It becomes a dead building. When a month’s footfall goes from an area, it does not come back. If you have empty buildings, people leave that area and they forget what took them there in the first place. That has an impact on both immediate rent and on the value of the property. It is not in a property owner’s interest not to keep tenants in place wherever it is possible to do so.

[Seema Malhotra]

Q I want to ask you specifically about the definition of “business tenancy” in the Bill. There has been some feedback that the definition is different from and narrower than that of the relevant business tenancy in coronavirus legislation. Do you have any views about the definition and, therefore, what could come within the scope of the Bill?

Melanie Leech: I have not had any concerns about that raised with me by my members.

Astrid Cruickshank: I do not have any concerns about that either.

--- Later in debate ---

[Seema Malhotra]

Q What is your view on how arbitrators should be guided in going through the process? What needs to be in place, in terms of guidance or otherwise, to make their role clear, so that there is some consistency? I imagine that confidence will come with clarity and consistency. Do you have any concerns or any message for us about what you want to see in place—what kind of guidance needs to be brought forward? Could I extend that to how assessments might need to be made of viability and ability to pay, with other costs—business rates and other costs, like the jobs tax—that might be coming on stream for businesses as well?

Lewis Johnston: Certainly. I was pleased to see, in clause 21 of the Bill, that guidance will be provided. There are several areas in which guidance might be necessary. The first is something that I know will be coming when applications open for approved bodies to appoint arbitrators, and that is around the precise skillsets needed. We have a reasonably good idea of what that would entail, but a bit more detail would be helpful. For the arbitrators themselves, I think the crux point is around viability and affordability. The Bill and the code of practice go into a bit of detail about the kind of evidence that could be assessed as part of that. I think there should be clarity over exactly how much power the arbitrator will have to be inquisitorial as part of the process, the extent to which they can order discovery and so on, and the kind of evidence they can ask for from the parties.

The Bill is very clear about its intention to balance the interests of tenants and landlords and to maintain the viability of otherwise viable businesses, while also having regard to the solvency of the landlords. There may need to be more guidance, and I appreciate that that might come when cases start to go through the system, about balancing the request of the tenant on what is viable for them with what is consistent with maintaining the solvency of the landlord, when those are at odds. Exactly how that could be decided is a bit of a moot point at this stage.

[Peter Dowd]

Q Partly linked to this one is clause 7(2) and (3). Subsection (2) sets out the requirement for the Secretary of State to approve those bodies suitable to become approved arbitration bodies to carry out the functions under section 8. The disapproval of arbitration bodies is in subsection (3). Have you had any conversations with the Department about the parameters of approved arbitration bodies—who they should be associated with, registration and all the rest—given that there may well be substantial amounts of arbitration going through the process?

Lewis Johnston: That is a good question, and the discussions we have had with the BEIS team initially focused on the question of capacity, because obviously we are talking about quite a large number of cases. The decision to go for more of a market-based approach, with a list of approved bodies rather than a single monolithic provider, was probably the right one. I appreciate that the Bill is taking more of a principles-based approach than saying that the arbitrators have to be accredited in a certain way. It is more about having the competency and impartiality.

Each of the bodies, if they are to be approved, will have to meet the criteria in one way or another. Speaking just for the Chartered Institute of Arbitrators, all our members are bound by our code of ethical and professional conduct, which covers issues such as integrity and fairness, disclosing conflicts of interest, ensuring that you are competent to take on the appointments you are given, trust and confidence in the process, and transparency around fees. That would address a lot of things.

Also, anyone that we were to appoint—should we become one of those approved suppliers—would have to make clear and sign a declaration at the outset, which disclosed any potential conflicts of interests or anything that might be perceived as such, as well as declaring they were competent and had the capacity to take on these cases. That would mitigate the risk of them having to resign or of delays in processing the case.

Commercial Rent (Coronavirus) Bill (Second sitting)

Debate between Seema Malhotra and Peter Dowd

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Seema Malhotra]

Q I think it is important—in the context of increased business costs next April, whether from business rates or the jobs tax—that your view is that those six months may not be long enough to have the scheme in place.

Martin McTague: We are seeing a lot of retail businesses hanging on by their fingernails, hoping for the best in this last quarter, and trying to get through the Christmas period, which is often make or break for them. If they get even a partial success, and start creeping towards a solution at the end of spring next year, it would be disastrous to try to drive those businesses under when they have survived all the trials and tribulations of covid so far.

Andrew Goodacre: I think the way the code of practice and the Bill have been put together is not bad, and they really try to cover all eventualities. The cost element of arbitration is a barrier to businesses, and puts the legislation at risk. The viability question—how you determine viability, and the clarity and transparency around that—needs to be addressed early on.

I know that we have asked this question and been given the answer, but there needs to be absolute clarity that the Bill applies to all businesses in scope, including those that are contracted out of the Landlord and Tenant Act 1985. That was one of the earlier questions that came back from some members, and we were told that it does include all those contracted-out businesses, but we need to be clear on that, because we do not want to end up with an unnecessarily ambiguous area that leads to legal argument.

There are also tenancy-at-will situations. When negotiations on a new lease are ongoing but have not been resolved during the closure period—the protected period—the tenant is operating on a tenancy at will. Arguably, there is no guarantee that that tenancy at will is covered by the Bill. Again, that will need clarity and understanding.

Martin McTague: There is another point that I should have raised. A lot of supply-chain businesses supply those that are directly affected and covered by the scope of the Bill—they have been seriously affected by what has gone on so far. If you take a retailer, for example, virtually everybody who is supplying that retailer has gone through the same sort of trauma as the retailer, but none of them will be protected in the same way.

Jack Shakespeare: I echo and endorse Martin’s point: one of the prospective risks is the uncertainty around the next few months. It feels like a bit of a “hold your breath” moment. You could talk about it being make or break for our sector and for different characteristics across sectors. A make or break part of the year for the gyms, pools and leisure centres sector is January to March. That is a hugely important quarter of the year, and it rolls into that time period. I would just echo that: the uncertainty of the next few months is a major risk.

[Peter Dowd (Bootle) (Lab)]

Q I want to tease out a little bit more on the extent of the impact on the Landlord and Tenant Act 1954. How wide is it? How many businesses are we talking about?

Andrew Goodacre: Contracted out?