Commercial Rent (Coronavirus) Bill

Baroness Blake of Leeds Excerpts

2nd reading
Thursday 27th January 2022 Grand Committee

[Baroness Blake of Leeds (Lab)]

Following the example of the noble Lord, Lord Shipley, I also declare my interest as a vice-president of the LGA, and I thank him for that reminder.

I am very pleased to be able to contribute to this important legislation today. When I think back to this time last year, I was still the leader of Leeds City Council, and the issues that we are talking about today are so real to me—all those horrific debates and discussions with the Cabinet Office and No. 10 about which tier of restrictions we were going into, knowing what the implications of those decisions, often made with less than 24 hours’ notice, would be for local businesses and communities. Of course, there was the perverse situation that, for some businesses, it was better to go into a higher tier, because they would be mandated to close and therefore would get more protection than businesses that were not covered and had to try to make awful decisions about whether to keep trading or struggle on, and all those things.

So I come to this with a very raw, first-hand experience of understanding what businesses and landlords have been through, and the decisions that they have had to take over the past two years. Of course, we are talking about the trauma of financial loss and potential bankruptcy, but we should not underestimate the real personal cost that this has put on individuals responsible not only for their own families but for those of their employees in the decisions that they have made.

I, too, echo the concern expressed in this debate about the future role of local authorities, because they have mostly had responsibility for helping businesses and communities through the past two years—and their knowledge of all the issues that we have raised is going to be invaluable in making sure that we can move this forward. Then there is the whole issue of how we can ensure that decisions made through this process actually contribute to the levelling-up agenda. That needs to all be put together in the round.

All of us who have spoken have recognised and acknowledged the need for fairness in the process, and I think that is going to lead to future scrutiny and challenge as the scheme unfolds. I am sure that we all agree that our aim here today and in the ongoing discussions is to ensure that the proposals are effective and accessible—and we have had some discussions about accessibility and sharing information about availability of support. As I have said, most important is how we fairly balance the interests of all relevant parties.

The main principle must be, as we have heard, that no otherwise viable business should face significant burden from rent arrears without a due arbitration and burden-sharing process. Likewise, commercial landlords must have access to clear mechanisms by which to recoup appropriate levels of arrears. Again, the issue that we are facing is around the long-term interests of British businesses, and some of those judgments and decisions around viability are going to be extremely difficult. But of course, all of us are concerned with protecting livelihoods and employment, acknowledging the real difficulties that have been suffered over the past two years.

I emphasise that we have to recognise the context in which we are working. As well as the impacts we have had over the last two years—it is hard to believe we are almost coming up to the second anniversary of the first lockdown—businesses are facing major challenges in the weeks and months ahead. They include the pressures from inflation, the energy crisis and dramatic increases in fuel costs, the proposed hike in national insurance contributions, and the supply chain crises, to name but a few. That is why we on our side are focusing on additional steps to help businesses and bring forward plans to deal with the long-standing problems facing them, particularly around the vexed issue of business rates, and why we have announced a major package of measures to tackle the mess that surrounds the whole business rates agenda. This matters, and these debates will have a profound influence on how high streets, for example—it is not limited to them alone, although they do get repeated mentions—will be able to emerge on the other side of the recovery.

Debate in the other House specifically on the Bill has sought to achieve greater clarity and fleshing out the detail. As we have heard repeatedly today on the basic definition of “viable” in this context, and to echo the comments from the noble Earl, Lord Lytton, how can we ensure that it is clear and appropriate in scope?

We have stressed a great deal the question of whether we are confident about the basis for the arbitration agreements. How can we ensure that constituency of approach and delivery will be guaranteed, and how will any such inconsistencies be dealt with? How can we be sure that the fees charged are consistent and not excessive? A specific question: will there be a cap on fees? I would welcome the Minister’s comments on that. Another question has been raised repeatedly: is there enough capacity in the sector to cope with the demand and—crucially in this context—to prevent further delays?

The date of retrospectively prohibiting court judgments only from 10 November is a case in point that we have to be mindful of. Evidence from the various interested parties outlines the huge ongoing burden that businesses have been facing. The impact assessment from the Treasury notes that the total amount of deferred rent liabilities could be around £9 billion by March. There has been enough delay, and we recognise the urgency of putting the right provisions in place.

We also recognise a welcome move in that many landlords and businesses have been able to reach agreement and have settled their liabilities. I make reference as well to the code of practice from the Department for Levelling Up, Housing and Communities and to how that has contributed. However, the uncertainty with regard to coronavirus restrictions in the run-up to Christmas—whether there would be any and what they would be—had a further devastating impact for many, especially across retail, hospitality, cultural venues and many more. With debts high as a result, further costs around arbitration become even more relevant. With the levels of uncertainty facing businesses and landlords going forward, surely it would be sensible to have a mechanism to keep progress under review. Is this an area where the Minister could also provide answers for us?

I look forward to the Minister’s closing comments and particularly to hearing where we have scope to add improvements to the Bill.

Commercial Rent (Coronavirus) Bill

Baroness Blake of Leeds Excerpts

Committee stage
Thursday 10th February 2022 Grand Committee

[Baroness Blake of Leeds (Lab)]

My Lords, I also extend our thanks to the Minister for his courtesy, as always, and for picking up these—as he made clear—technical issues. We have received numerous representations on the Bill from stakeholders. I was pleased to hear the Government picking up some of the very detailed concerns about liabilities. We recognise Amendments 11 and 12 as positive, reflecting the concerns raised by stakeholders. I shall be interested in hearing the clarifications from the Minister on the points raised by the noble Earl, Lord Lytton, and the noble Lord, Lord Fox, particularly on definitions. The complexity of these areas makes us all try to look at the unintended consequences that could flow from making one change. Sadly, we know the pressures that so many of these businesses and tenants are under and the potential risk to their future liability.

[Lord Fox (LD)]

With apologies to the Minister, I forgot to complete what I was going to ask with respect to government Amendments 11 and 12. Would they in any way change the relationship with former tenants who have unpaid rent when it comes to the process of recovering that rent? That was not clear to me from what the Minister said, probably because it was not the intention of what he was describing. Can he clarify that they would not in any way downgrade the landlord’s ability to pursue unpaid debt from a former tenant?

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Moved by

[Baroness Blake of Leeds]

2: Clause 7, page 5, line 19, at end insert—
“(2A) The Secretary of State must ensure that bodies approved under subsection (1) have adequate resources and sufficient numbers of arbitrators as are (whether alone or as a member of a panel of arbitrators) required to conduct arbitrations under this Part.”Member’s explanatory statement
This probing amendment would require the Secretary of State to ensure that the approved arbitration bodies collectively have sufficient capacity, and resourcing, to hear all arbitrations under this Part.

[Baroness Blake of Leeds (Lab)]

I am grateful for the contribution that the noble Lord, Lord Fox, has made in this grouping and look forward to the discussions that we will have, recognising the additional amendment in this group.

I again thank the Minister for the attention to detail in representing the representations from stakeholders —importantly, from both tenants and landlords. I thank him, too, for his letter responding to the concerns raised by noble Lords at Second Reading. I just want to make the point about understanding the real pressure that businesses, tenants and landlords are under at the moment. It has been an incredibly difficult winter for many businesses, as we know and, of course, we are in a situation where we face ongoing pressures from the national insurance rise, energy costs and inflationary pressures. It is a time of great uncertainty for many people affected by the Bill before us. We welcome the moves forward as outlined in the Bill, recognising the complexity and the absolute need to get the detail right, but also the time pressures and the fact that the clock has been ticking for many businesses for some time now.

Of course, running through all that, it is essential that stakeholders have confidence in the system. The reason for Amendment 2 is the need to ensure absolutely that bodies under subsection (1) have adequate resources and sufficient numbers of arbitrators. Through this amendment, we seek reassurance with regard to immediate capacity, but I would also like to ask about evidence and what understanding there is of how much work has been done on resourcing the needs and future demands on services for all those involved. It is essential that everyone feels that they have proper access to a fair hearing. I should like the assurance that all due consideration has been given to the proposed nature of the hearings.

I understand that the assumption is that the hearings will be in public and that oral hearings may be desired by the parties involved. Could that have an undue impact on costs? Would they add to the capacity requirements of the arbitrators? Am I right to understand that a document-only approach would allow for a more efficient process? Is that the understanding behind the direction of travel, and would this be seen to keep costs and time lower?

We understand from our discussions at Second Reading that many cases have now moved to be settled. Would we be right in assuming that the outstanding ones may well be more complex, which explains why they are moving forward to seeking arbitration, as laid out? My question remains: has a full assessment been undertaken with regard to the demands of the services of arbitrators? I am sure that the noble Lord, Lord Fox, will expand on the issues around accessibility to the services.

Amendment 3 would increase the transparency of the arbitrator’s decision, which we have emphasised in the debates in the other place—and I refer to the discussions that were held there.

I regard Amendment 5 as positive and, again, is one that we tabled in the other place. We are concerned that the arbitration fees could be the final cost to push landlords and businesses over the edge. Therefore, we consider that the Secretary of State should ensure that fees are capped. As I said at the outset, this is a time when costs are escalating in so many different areas; we would like the absolute assurance that this area has been considered and controlled.

Can we also be assured that arbitration fees and expenses will be proportionate to the arrears that have caused the dispute? High arbitration costs will have a huge impact on businesses that are doing everything they can to emerge from the pressures that they have been facing. The fact that they need to go to arbitration highlights those pressures. Will the Minister expand on the powers that the Secretary of State will have to make regulations specifying limits on the fees and expenses of arbitrators? What circumstances would lead to the Secretary of State becoming involved, and how will affordability be judged?

With regard to Amendment 7, also in my name, can the Minister say more about what, in his view, constitute viable and unviable businesses? Further, could he expand on what guidance will be provided to arbitrators? Do we know how much flexibility they will have? We all recognise the difficulty of defining what constitutes viability or affordability, but this is such an important area that we need to push further to make sure that we have a clearer definition. That is why we seek more answers in this area and to add more depth to some of our previous discussions.

The noble Lord, Lord Fox, has tabled Amendment 7A, and I shall listen with interest—sorry, this is a double use of the word—to the cap on interest. I am interested in the interest on the interest. With those points, I beg to move.

[Lord Fox (LD)]

My Lords, I shall speak to Amendments 3, 5 and 7A in my name, and in support of the other amendments in the group, most of which I countersigned and one that I, mysteriously, did not. I am not sure why, because I agree with it completely. It certainly does not have any lower rating because I failed to sign it.

My three amendments are relatively self-explanatory and I shall be brief, but the Minister should not mistake that brevity for the idea that I do not think they are important. I can speak for longer if necessary. Amendment 3 would ensure that arbitration decisions are easily accessible. The basis for that is that, although we do not have long to get through this process, building up a body of case law, or case decision-making, will be important for consistency. What worries me most is complete inconsistency in how these rulings are made. I think we will come to the last point that the noble Baroness, Lady Blake, made about viability, which is where inconsistency will be most a problem. One starting point is to publish fully and accessibly. It would be better if the Government had their own website which scraped them up and put them all in one place so that people would not have to go to various places but, at the very least, they should be easily available somewhere.

Amendment 5, which has some crossover with parts of Amendment 6, requires the Secretary of State to make regulations specifying limits on arbitration fees. The Minister will see that the word “may” is employed, and I am sure he will tell us that this is a legislative trope and that this is how it is done. That is what I expect. Therefore, it will be sufficient if the Minister stands up at the Dispatch Box and says that such regulation will be brought forward at the earliest opportunity and the word “may” remains in the legislation. That would clearly clarify the Government’s intention as to whether this process will happen.

I apologise for the late arrival of Amendment 7A, and I really appreciate the help of the Public Bill Office and others in drafting it so that it is in scope of the Bill. The aim of this amendment is to put a cap on the level of interest that can be baked into the arbitration. This is important because otherwise it will be a lever used in the negotiation. In other words, the landlord will say, “Yes, I’ll do this deal but I expect interest of X or Y”, and clearly that interest level may not be to the advantage of the tenant. Therefore, putting this in removes that lever from the arbitration process. It knowingly and deliberately moves it so that the negotiation is on different ground. The Minister will have noted that I often speak up against secondary legislation—indeed, we have some coming later—but in this case it seems to me that Amendments 5 and 7A are good examples of what secondary legislation was designed for.

I turn briefly to the amendments in the name of the noble Baroness, Lady Blake. Amendment 2 is a sensible measure to ensure that there are sufficient arbitrators. The Minister has said on occasion that there are sufficient, but to some extent he is relying on the word of the organisations concerned. I think it unlikely that they would say, “No, Minister, we can’t do it”. This amendment forces that assurance process a little harder.

Amendment 6 further supports Amendments 5 and 2, in my view. I thank the Minister for his letter. One element of that was to set out the distribution of potential cases. The question I have is whether the availability matches the potential cases. For example, it seems that there is a concentration of potential cases in the south-east, and it seems likely to me that there is probably a concentration of resources for arbitration in the south-east. But what of the towns where the commercial infrastructure has dwindled and where there are not the people who fit the arbitration photofit that the Minister described? How has the Minister ascertained that those towns, cities and villages, which will need arbitration just as much as the bigger places, will have the supply they need? If they do not have the supply locally, on their doorstep, how will that be supplied otherwise? It is not just whether they are sufficient in the country but whether the footprint of those arbitrators matches the expected need.

Then we come to Amendment 7, the one I did not sign, which is strange because I think it is really important. The questions I asked in the debate before Second Reading were, “What is viability?” and “On what forward data is viability assessed?”. One percentage point on expected interest rates, one or two percentage points different on expected inflation and one percentage point up or down on the RPI are the difference between life and death for a business. When the arbitrator sits down at looks at viability, from where is that arbitrator going to get that data and how can we ensure that the data is consistent? The Treasury and the Bank of England often get it wrong when it comes to forecasting data—with all due respect to the Deputy Chairman’s son, who I believe has the job of making some of that data. The point is that we have to use something. Is it up to the arbitrator to decide which projection for RPI, which interest rate data and which inflation data are to be used? This is the difference.

What does viability mean? Is it wiping your face in the colloquial, is it a 5% return on capital employed or what? What do we mean? How do we make sure that businesses are not shut down that in other places are determined viable? This is a difficult question to answer but it is a crucial point, on which the effectiveness of this legislation will turn.

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[Baroness Blake of Leeds (Lab)]

I conclude by thanking the Minister for his very full responses to the concerns raised in this group of amendments. It is fair to say there is still some concern that we will probably pursue at the next stages. I wonder whether the Minister can write to let me know when the statutory guidance, particularly on viability, is likely to be made public. Again, we are in difficulty when we have not had sight of the guidance around the Bill. I do not want to open old wounds again, but it is a recurring theme that we have to deal with. Any clarity on that would be helpful.

I am grateful for the responses but, without going through all the detail again, in taking this work forward it is essential that all the parties have confidence in what is being put before them. The issues raised today are consistency, clarity, transparency and fairness. We must make sure that whatever comes through is deemed to have all those principles or qualities, wherever in the country you happen to be. I admit that I share the concerns of the noble Lord, Lord Fox, about local knowledge. Looking at the statistics, it is clear that certain parts of the country have been affected more than others. The stress that those areas are feeling is also not equally shared in relation to some of the big issues we have coming forward.

[Lord Grimstone of Boscobel (Con)]

It may be helpful if I say that I understand the noble Baroness’s point about guidance. It is very much our intention to publish the draft guidance before Report. I will keep the noble Baroness and noble Lords in touch with that. I understand why that question has been asked.

[Baroness Blake of Leeds (Lab)]

I thank the Minister for that intervention. We will look forward with interest to the guidance coming through. It is essential that it comes before Report, if I am allowed to say that. With those comments, and looking forward to further clarification, I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

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I agree, which is why I am speaking against the clause standing part. The Minister knows that the DPRRC is a serious committee; it is one of the most important committees that we have in your Lordships’ House and it does not make these judgments lightly. I hope that the Minister will understand that, acknowledge this issue and find a way of moving forward, while recognising that Clause 27 in its current form is not an acceptable drafting.

[Baroness Blake of Leeds (Lab)]

I put my name to this stand part notice in the name of the noble Lord, Lord Fox, in the light of the very direct comments we can see in the DPRRC’s report. I am sure that those comments were not made lightly and came from a position of real concern. In my short time in this House, I have picked up that this is a recurring theme and concern. Wherever we have the opportunity to call this out and seek to address the direction of travel, I believe it is our duty to do so.

Having said that, we recognise that it is important to make sure that mechanisms are in place to deal with future potential outbreaks of this pandemic or, indeed, other situations or pandemics that might arise in future. So, in supporting the direction of travel, we ask that the Act be amended by primary legislation to update the arbitration moratorium period. I hope that this would support the DPRRC’s recommendation but ensure that we would be able to extend the period if further restrictions became necessary.

[Lord Thurlow (CB)]

I do not want to make any specific points here, but I echo the very important point made by the Delegated Powers and Regulatory Reform Committee. As a House, we have been assaulted with these clauses with increasing frequency over the past few years. The Delegated Powers Committee has written an unprompted report criticising the adoption of these powers.

On this Bill, I think it unnecessary because we are dealing with a generic problem. I feel that it could be comfortably addressed if there was a need for further extensions as a result of outbreaks. It could be rolled forward, with amendments as required, in primary legislation. The bulk of the work—the hard work—has been done, so I echo the comments in the previous speeches.

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[Lord Fox (LD)]

My Lords, we are on the last group— so soon. The amendment

“would require the Secretary of State to review the impact of this Act four months after the Act has been passed.”

That is unusual because, normally, the review process is one year, or five years, or whatever. However, we need to look at Clause 9, which sets a time limit of six months from when the Act is invoked or enacted for people to submit their process. I may have misunderstood —if so, I hope the Minister can put me right—but, if that is the case and that six months is a serious period, we need to assess the progress of this Bill in time for the Minister to roll it forward; the Bill makes provision for that, as I understand it.

We have talked about availability; the Minister has said that he will keep this under review. We have talked about cost; the Minister has said that he will keep this under review. We have talked about regional distribution and how that works; the Minister has said that he will keep this under review. My amendment would create a process that allows this review to happen formally so that your Lordships’ House and the Commons have time to roll this forward if some of the issues that we have discussed are preventing the process going forward.

I want to say one thing on the subject of fees. It comes back to a point that I ask the Minister to continue to review. As the noble Lord—Lord who? Sorry, Lord Thurlow—pointed out, there are a lot of ancillary costs other than the cost of the arbitration process itself; there is the cost of preparing for it, for example. In the end, this can be a loaded gun that the landlord—or the tenant, depending on which way it goes—can use. In other words, “It’s going to cost you this anyway so you might as well give me that”. I do not think that that is the purpose of this Bill. The Bill’s purpose is not to enrich massively dozens of service industries; it is designed to keep commerce rolling. One thing that must be reviewed, and one reason why we are keen to have this four-month review, is the question of whether the cost of fees is causing unfair settlements to occur. With that, I beg to move.

[Baroness Blake of Leeds (Lab)]

I am pleased to put my name to Amendment 10 and stand here to support it.

Constant reference has been made to monitoring the progress of the matters we have discussed, in particular to assessing the impact on all parties in the spirit of fairness and consistency. I believe that such a review would be welcomed by all parties: landlords, tenants and arbitrators. We must ensure that it is fully understood and clear as to whether the system is well understood, is working well and, most of all, is bringing benefit to those areas where it is needed most.

I would not be persuaded if the argument against this was that it would be onerous or too costly. The cost of failure in an area such as this would be far greater than the cost of keeping a close eye on progress and making sure that adjustments can be made if they are deemed appropriate.

With those few comments, I am pleased to support the amendment.

[Lord Thurlow (CB)]

My Lords, as a punishment for the noble Lord, Lord Fox, forgetting my name, I must object to his proposal and support the Government. In fact, four months is not enough. As we are likely to launch this legislation as an Act, which I hope is soon, just as the holiday season bears down upon the country, four months will become three months. There will not be enough momentum, precedent or example to really form a worthwhile review after such a short time. I realise that time is short and that we must not waste any time at all; we must give guidance based on results as quickly as we can to the sector, to the arbitrating bodies and to landlords and tenants. But I think the period proposed is too short.