Commercial Rent (Coronavirus) Bill

Lord Fox Excerpts

2nd reading
Thursday 27th January 2022 Grand Committee

[Lord Fox (LD)]

My Lords, I do not think I have spoken in a debate before Second Reading in the Moses Room before and I do not think I have spoken when the department staff almost outnumber the speakers, which probably points out why we are in the Moses Room.

Many of the issues I am going to cover have already been covered by previous speakers. I am quite relieved about that. Given the vast experience in local government of one speaker and the experience in the property market of the other speaker, I am rather glad that I am covering some of the same ground, because we appear to be in the right place.

Covid has shocked the commercial lives of our villages, towns and cities across the country. As we have heard, the Bill is designed to help deal with one of the big aftershocks, rent debt. The Minister said earlier that there is £6 billion of rent debt. To put this into context, all town centres and high streets have been hit, but businesses with physical premises—bricks and mortar—tend to have suffered the most. For example, some shops have lost close to one year’s trading in value terms over the course of the Covid pandemic.

I am sure the Government will say that help has been on hand on during this process, which it was, but, meanwhile, as we have heard, rent has been accruing, Covid loans will soon need to be repaid and there is much catching-up to be done. It should be noted that the Covid shock has come on top of other difficulties that already make trading hard. The noble Earl, Lord Lytton, alluded to some, as did my noble friend. They include supply chain issues, difficulties hiring and retaining employees, wage inflation and energy costs. So this Bill is welcome, and the Minister will be pleased to know that we will be more in lock-step than we were during the previous Bill on which we worked together.

The Bill is important not least because a lot is staked on the way businesses develop going forward. Communities will be deprived of their focal points and their services if we get this wrong. Local jobs will go, and a deprivation spiral will sink further. The Minister set out the number of businesses that are currently in arrears—some 60%—which is falling, but what is the geographical breakdown? While “only” 40% of leisure businesses are still in arrears, are they focused in particular communities? My suspicion is that they are, so the concentration of damage will be higher in some areas than in others. Frankly, they will be the areas that have already experienced more problems. This is really important, and it is coming at a time when we are all being urged by the Government to reopen our economy.

As set out, there is a balance to be established between the needs of tenants and those of landlords. As has been said, it is in nobody’s interest for great holes to open up across real estate. It is right that we should remember that not all landlords are large corporates. They are private individuals or small firms and, as my noble friend Lord Shipley pointed out, in many cases they are local authorities, which are quite big players in some communities. When the Minister kindly met me, he spoke about consultation. I should have asked whether local authorities have been explicitly consulted on this issue. I would appreciate an answer to that.

When it comes to striking a balance, we support binding arbitration as a way forward. Therefore, the role of the arbitrator will be crucial, and we heard comments along those lines. The Minister told us that he has consulted bodies which will serve up the necessary arbitrators and said that they are satisfied with the way this Bill is going. Although the Minister reported that they are confident that this process will be doable—I do not know whether it is straightforward—I echo some of the comments made on the complications. Not only will there need to be an assessment of what has been lost, which should be a relatively straightforward calculation, but there needs to be a reasonable sense of business prospects. This is a much harder call. That is not only because of the hardening business environment that I have just described but because consumer and work habits have changed. We do not know to what extent these changes are permanent and how they will develop, but we do know that those changes will influence the trading prospects of many of the businesses that will come up for discussion. The definition of “viable business” will by no means be clear-cut in a lot of cases. That has already been pointed out. My noble friend asked about challenging a ruling on the viability of a business, which I think will be an issue that rears its head. How will the department support arbitrators in the definition of “viable business”?

The next point is around the source and supply of arbitrators, which both noble Lords spoke to. It is not clear yet how many arbitrators the Minister believes are necessary, assuming the 7,500 figure is a reasonable estimate. Has that number been matched with the available people? Furthermore, what is the plan for quality control and training of these people? This comes to the point made by the previous speaker. This is a different situation and role. It is a national role, and we want to see equivalent quality across the country.

Does the department have some outreach plan to make sure that the arbitrators are working from the same statistics, for example, inflation estimates? If one arbitrator is using inflation estimates of one level and another is using a different one, their outcomes will necessarily be different. How will they be kept in line? That is just one area.

The Minister outlined that, using the code, we hope there will be a diminishing need for arbitration. In a sense, as he set out, the main purpose of this Bill is to put something in place that will not be used too often. He called it a “backstop”, a term which I was going to suggest, so we are in line on that one. Its presence will hopefully act as an incentive, as we have heard, to drive prior agreement before arbitration is called on. The access process for triggering arbitration is not completely clear to me. I might have missed it in some of the guidelines, but it would be helpful if the Minister could outline how, if I am a landlord or a suffering tenant, that process is triggered.

Like the noble Earl, Lord Lytton, I have concerns about asymmetry. We discussed this when we met. When you have a big landlord and a small tenant, there is a clear opportunity for a mismatch. The Minister was clear when we met that the low cost of entry should prevent this being an issue, but can he explain how other costs will be controlled? How will the ancillary costs of preparing one’s case be limited? It is quite clear that a corporation with a large chequebook has much more firepower in preparing its case for the arbitrator than a small sole trader. Of course, sometimes the mismatch is in the opposite direction. It is not just the cost of entry but the cost of preparing one’s defence or offence in the arbitration process.

Assuming that the Government are successful in maintaining this low-cost, symmetrical situation, how will they communicate the availability of this process to landlords and tenants across the country? What is the communication plan sitting underneath all this?

I do not expect subsequent stages to be long, but I will set out a few questions it would be helpful to answer. What consultation has there been with local authorities? Are sufficient arbitrators available? What modelling has been done and what training and quality control process is sitting under this? Can the Minister remind your Lordships what constitutes an arbitrator? In our meeting he mentioned country solicitors. On reflection afterwards, a reg flag went up, given country solicitors I have known. Are changes planned in the arbitration accreditation process to acknowledge the new nature of this role? Will there be ongoing communication with arbitrators—for example, providing them with not just data and results but case studies of how those results arose, as a previous speaker mentioned—or are they effectively on their own, inventing it every time? What is the process for triggering arbitration? How will the Government go about communicating all this to tenants and landlords?

Even if this Bill is successful and the number of bankruptcies is reduced, there is going to be a waterfall of bankruptcies in our towns, cities and villages across the country. As well as this—and I would like the Minister to acknowledge it—there is other work to be done in maintaining local economies, particularly in the most underprivileged and least well-off areas. This Bill will not be sufficient to keep our way of life running in some parts of the country.

I look forward to hearing the noble Baroness, Lady Blake, and the Minister’s response to these speeches.

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[Lord Grimstone of Boscobel (Con)]

My Lords, I thank noble Lords for their insightful contributions to today’s debate. We have heard four speeches, all of which were eloquently delivered. The number of speeches was small but they were rich in content, and I congratulate noble Lords on that. I thank the noble Baroness, Lady Blake of Leeds, and the noble Lord, Lord Fox, for their constructive approach to this important legislation and the noble Lord, Lord Shipley, and the noble Earl, Lord Lytton, for the welcome they gave the Bill.

Many issues have been thoughtfully raised, and I will address as many as I can now. On some of the detailed points, I shall write to noble Lords, and I am sure we will come back to them in Committee. That will include the points made by the noble Lord, Lord Shipley, about interest and by the noble Earl, Lord Lytton, about service charges and whether it is appropriate to include them in the award. The noble Lord, Lord Fox, asked about geographical distribution, and I will find out all I can about that and write to him. I can confirm that the consultation on the Bill covered local authorities and their bodies.

I quickly remind noble Lords of what this Bill signifies and what it will achieve. Businesses which could not pay their rent due to the impacts of the pandemic have rightly been protected from evictions, seizure of goods and certain insolvency proceedings. As I said earlier, these businesses have now built up a significant amount of rent debt. I know that noble Lords welcome the fact that many tenants and landlords have been able to have open, transparent conversations, and I am thankful to those willing to be flexible when negotiating on unpaid rent. However, we have heard of plenty of cases where negotiation has been unsuccessful and agreement has not been reached. The Bill’s binding arbitration scheme is a proportionate and carefully crafted solution to these cases. It will provide the commercial tenants who need it the most and their landlords with the clarity and certainty they need to plan ahead and recover from the pandemic. In this way, the Bill will protect jobs—the noble Baroness, Lady Blake, is particularly concerned about the impact on society and jobs that we have seen during the dreadful pandemic—and, we hope, will enable a swift return to normal market conditions.

The noble Lords, Lord Shipley and Lord Fox, asked about the capacity of arbitrators to undertake this work and whether there would be sufficient arbitrators. I reassure noble Lords that we have worked closely with arbitration bodies during the development of the arbitration system. The application process which will permit an arbitration body to be included in the list of approved bodies will require it to evidence its capacity. We will not just take it for granted; it will be considered carefully before an arbitration body is admitted to the approved list. However, I believe our market-based approach of allowing arbitration bodies to set fees will ensure that on the one hand there is enough arbitrator capacity and on the other hand that the scheme is affordable.

On the autonomy of arbitrators, the Arbitration Act guarantees it. We can come back to that again in Committee.

The noble Lord, Lord Shipley, asked how the viability test would be applied. I know that the noble Baroness, Lady Blake, is also interested in this. That is probably best dealt with when are in Committee, where we can go through it in detail. I undertake to do that. The assessment of viability and solvency undertaken by arbitrators is an important step in determining whether relief from payment of rent debt should be granted. I think professional arbitrators will be able to do that. I do not want to disagree with the noble Lord, Lord Fox, about whether country solicitors are capable, but I assure him that someone who is not capable of being the appropriate arbitrator would not be put forward by the arbitration body. I am sure that neither of us would want the wrath of country solicitors to come down on our heads.

[Lord Fox (LD)]

As a point of information, it was the Minister who brought up country solicitors rather than me. Coming from the country, I need to be careful.

[Lord Grimstone of Boscobel (Con)]

I am constantly amazed by the noble Lord’s wit in these debates.

I hope that I can reassure noble Lords that these principles will ensure that the Bill supports businesses that will continue to prosper and contribute to our economy while protecting landlords.

I say to the noble Earl, Lord Lytton, that we will certainly come back in Committee to how the solvency tests will work. I will write with further details of that.

Noble Lords asked about the monitoring of arbitrators to ensure that they apply the principles consistently. First and foremost, arbitration bodies will appoint only arbitrators that are considered suitable to carry out the arbitration as set out in this Bill. An arbitration body also has the power to oversee any arbitration in relation to which it has appointed an arbitrator. So the arbitration bodies are in the front line of ensuring the quality of the arbitrators who will operate under the Bill.

The Secretary of State can request a report from approved arbitration bodies covering the exercise of their functions under this Bill. This report can include details on awards made and the application of the principles set out in the Bill to arbitration that they have overseen.

Noble Lords rightly asked about transparency. There is a requirement for arbitrators to publish the details of awards made, including the reasons behind them. This will show how arbitrators have applied the principles in the Bill to reach their decision. Over time, as noble Lords have mentioned, this will allow case law to be built up.

[Lord Fox (LD)]

Will the department retain the ability to withdraw the accreditation of arbitration bodies in the event that their performance proves to be unsatisfactory?

[Lord Grimstone of Boscobel (Con)]

I am sure that if an arbitration body is not performing satisfactorily there will be a mechanism to ensure that it does not carry on providing arbitrators, but I will check how that operates and include it in the letter that I will write to the noble Lord.

As this process continues, if there is a need to revise the guidance—for example, to clarify or add new information for arbitrators—the Secretary of State is able to do that.

Noble Lords, including the noble Lord, Lord Shipley, my noble friend Lord Lytton and the noble Lord, Lord Fox—it would have been simpler if I had just said everybody—asked about the affordability of arbitration. I think the market-based approach that we have adopted, in which arbitration bodies will set the fee levels, will work in practice. Arbitration bodies have, of course, extensive experience of costing and running schemes such as this; they are best placed to decide on fee levels to make the scheme affordable and accessible for parties, but also to incentivise arbitrators to take on cases and maximise capacity. We have tested the costs of similar arbitration schemes currently on offer in the market, and landlords and tenants in our consultations have both indicated that it is affordable. However, if it turns out not to be the case, Clause 19 gives the Secretary of State a power to make regulations specifying limits on the fees and expenses of arbitrators and approved arbitration bodies, if that is necessary.

The noble Lord, Lord Shipley, asked about opportunities for scrutinising the scheme once it has been implemented. I believe that ensuring that it is properly monitored will be a key aspect of a smooth delivery, and the most crucial way in which we will evaluate the scheme is through the requirement for arbitration bodies to publish their awards—a point I made earlier.

I understand that there may be concerns about the commercially sensitive nature of much of this information but, of course, arbitrators are required to exclude confidential information, including any commercially sensitive information, unless the person to whom it relates consents to its publication.

We really want the arbitration process to be as transparent as possible because, of course, it is in the public interest for it to be so. Transparency will help to establish market expectations of fair outcomes from the arbitration process on rent arrears for different business circumstances. Stakeholders raised questions—noble Lords are right—about transparency, but I believe that the relevant clause in the Bill will address that concern.

Noble Lords asked about consistency. Arbitration bodies will appoint only those arbitrators considered suitable to carry out arbitration as set out in the Bill. These bodies will also have the power to oversee any arbitration in relation to which they are appointed an arbitrator, which will provide the necessary safeguards we all want to see.

In conclusion, I thank all noble Lords who have engaged in today’s debate; it is a shame that we did not have a larger audience to see us in action. We have had informative and erudite contributions and, of course, as always, that is a testament to the wealth of experience in this House. I am conscious that I have not addressed all the detailed points raised by noble Lords but, of course, as well as writing, I am more than happy to meet to discuss any individual concerns as the Bill moves forward. It is a pleasure to be leading the Bill through the House, and I will warmly welcome engagement with noble Lords across the House to ensure that the Bill gives businesses and landlords the certainty and support they sorely need. I look forward to discussing it in Committee.

Commercial Rent (Coronavirus) Bill

Lord Fox Excerpts

Committee stage
Thursday 10th February 2022 Grand Committee

[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.

[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?

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank noble Lords for those points. I will answer them as best as I can because there are some technical issues underlying this. I hope noble Lords will not mind if I have to write in amplification of the answers I give.

First, on the point made by the noble Earl, Lord Lytton, the coronavirus regulations imposed mandated closure requirements on either businesses or premises. Sometimes the run two together but they do not necessarily do so. The Bill applies to all such cases where there was a requirement in the coronavirus legislation so one has to look back to that legislation to understand the difference between businesses and premises in it. However, I will write to clarify that further for the noble Earl.

On the question asked by the noble Lord, Lord Fox, the intention is that the arbitral award, which is binding, will substitute itself for the debt that previously existed. On that basis, it should not apply to the credit rating of the person concerned. Having said that, I guess we all have experience, either directly or through colleagues, of where that perhaps has not flowed through to the outcome as it should have done—in which case, the answer, I am sure, is that one must take it up with a credit rating agency. However, if that were to happen, it would be an error that would then have to be corrected.

[Lord Fox (LD)]

In the likely event that the Bill becomes law, might there be some way for the department to inform the credit rating agencies about this process? The last thing a business needs if it is trying to get back up and running is to find that its credit has been shut down. Some pre-emptive action with the key credit rating agencies might help to alleviate the situation.

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[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.

[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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[Lord Grimstone of Boscobel (Con)]

Again, I thank noble Lords for their contributions on this group. I thank the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, for their attention to the important issues raised through their amendments. I am grateful for the constructive debate we have had on this, complicated though it is. I have to say to start with that I very much agree with the noble Baroness about the extreme pressure that businesses have been under during this very worrying time. I hope that this Bill will be a small contribution, at least for some, to easing that worry.

Turning first to Amendment 2, I thank the noble Baroness and noble Lords for their consideration of the issue of ensuring adequate arbitrator capacity and administrative support by arbitration bodies. These are key to achieving our aim for disputes to be resolved quickly. As I said before, we have thought it right to adopt a market-based policy approach. This means that approved arbitration bodies, which have expertise in running schemes like this and mounting these things—they will not have run an identical scheme to this one but they will have run similar schemes in the past because it is, in a sense, their core business—will manage their internal capacity processes to perform their functions in the Bill to the required standard.

I believe that this approach of empowering arbitration bodies to manage their internal workflows is the optimal way to ensure that there is enough capacity in the system to deal with the caseload. Not only have my officials been in deep contact with the arbitration bodies about this but I myself held a round table with some of them earlier in the week. I probed them very hard on these matters and, I must say, I got replies that satisfied me as to their ability to cope with this and put the systems in place. In a sense, their very reputation as arbitral bodies depends on them being able to do things like this.

Of course, adopting a more market-based approach does not mean that we are not taking action to engage with the issues of arbitrator capacity and arbitration body resource capability. As I said, we have been engaging extensively and on an ongoing basis with arbitration bodies in relation to these issues, and we will continue to do so. If tweaks have to be made, we will certainly make them.

Let me give a bit more colour to that. The application process for bodies to become approved contains a question on the number of arbitrators listed with the body that would be potentially suitable for the scheme. This is designed to ensure that the arbitration bodies that are approved will be able to list, and therefore appoint, a sufficient number of arbitrators. In any event, simply looking at the number of arbitrators that arbitration bodies can list underrepresents the capacity in the system because it disregards the fact that an arbitrator will be able to take on more than one case at a time.

The noble Lord, Lord Fox, asked, quite properly, about the geographical dispersion of arbitrators. It is very much our intention in the Bill that this is a documents-based process; to that extent, geographical location is less relevant. Also, our belief is that a lot of this will be conducted online by the arbitrators, so the things in this Bill will not necessarily turn on whether there is a local arbitrator on this.

[Lord Fox (LD)]

I thank the Minister for his answer and accept that position, but I think he would also agree that, in order to assess the viability of a particular business correctly, local knowledge is quite helpful. The idea that, at its extreme, you are sat in a village in Herefordshire conversing with someone in Westminster and doing the process, could create confusion.

[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord for that intervention. Of course, in the cases put before the arbitrator, one would expect either the tenant or the landlord themselves to refer to those local issues, but it is of course absolutely open to the arbitrator to call for more information or evidence to deal with that local point. Indeed, it may well be sensible in many cases to appoint an arbitrator who has local knowledge, but I think that the system will adjust and do that as necessary.

The noble Baroness, Lady Blake, asked whether the outstanding cases—we are down to a number in the low thousands now—are, by definition, likely to be the more difficult ones. Some of them are likely to be more difficult but, frankly, quite a proportion of them will involve people who have just been ignoring this topic, hoping that it will go away and something will turn up. Obviously there is something in the noble Baroness’s point, but there is a variety of factors that may be the reason why people have not yet come forward to settle by themselves. Of course, as I have said previously, it is very much our wish that people settle this themselves when they can.

I was asked about viability—and I will come back to it again later. It is difficult to be overly prescriptive about viability. The Bill deliberately does not define viability specifically because—this comes back to the geographical point from the noble Lord, Lord Fox—arbitrators need to make the assessment in the context of each individual business’s circumstances, especially given the variety of businesses that may use the scheme. It is essential that arbitrators do that, and have the flexibility to do that, to achieve a fair outcome. We will produce more statutory guidance for arbitrators on this, but I have confidence because, in a sense, it is their whole business to be able to arbitrate matters—that is, to weigh up the necessary factors and come to a sensible conclusion.

[Lord Fox (LD)]

I appreciate that, and I am pleased that there will be more statutory guidance. It seems to me that the sources of data should not be the topic under discussion during the arbitration process. Can the Minister give us some sense of the basis on which people are making decisions, while at the same time accepting my point that there are local variations in markets and that this element would take out some aspects of what could be, in the words of the noble Earl, Lord Lytton, gamed?

[Lord Grimstone of Boscobel (Con)]

I thank the noble Lord for that intervention. From talking to some of the arbitration bodies, I know that the way they operate is that, when a case like this comes to a body for it to decide on the arbitrator, normally a list of arbitrators is put in front of the parties for them to choose. This is a thoughtful process, as it were. The list of names that the arbitral bodies put before the parties to choose an arbitrator is done rationally. Frankly, one would expect that, if there are locally based arbitrators to do this, they will be the people on the list; the parties may then choose them. I cannot give the noble Lord an absolute guarantee in relation to that but it seems to me that, sensibly, this will be how the system should, and will, operate.

Turning to Amendment 3, I thank the noble Lord, Lord Fox, for his interest in the publication of awards. We absolutely want to ensure that the public can easily access arbitral awards issued under this scheme. That is why Clause 18 already requires arbitrators to publish an award made, together with the reasons for making it. I am sure that, as this scheme rolls out, if we find that this publicity is not reaching the people it needs to, we will take steps to ensure that it does.

We do not believe it is necessary to require approved arbitration bodies to publish decisions as well, although some may well choose to. In addition, we envisage that as part of its function of overseeing an arbitration, an approved arbitration body would ensure that the award is published as required. Frankly, the convenient way to do that would be on the website of the arbitral body. We are in ongoing discussions with arbitration bodies regarding how to ensure that awards are published in an accessible manner for landlords and tenants who are considering making a reference to arbitration.

I think we are in absolutely the same place on the need for this. I hope I have persuaded the noble Lord that this amendment is not necessary and I request that he does not press it.

Turning to Amendment 5, I thank the noble Baroness, Lady Blake, the noble Lord, Lord Fox, and other noble Lords who have spoken for their consideration of the important issue of arbitration fees and the Secretary of State’s power to cap those fees. I assure your Lordships that we also want to ensure that all those who need to access the scheme can do so. That is why, for example, when arbitration bodies seek approval we are specifically asking them what they intend to do to make sure the scheme is affordable for SMEs.

As I have mentioned, the Bill adopts a market-based approach. Approved arbitration bodies, which have expertise in running and costing similar schemes, will have the function of setting fees. It has been made clear that while fees should be set at a level that incentivises arbitrators to act, it is important that the scheme is affordable for all those who need to access it. Capping fees prematurely could reduce the number of arbitrators able to act and in a sense would compound the problem that we are trying to solve. A cap should therefore be imposed only where there is evidence that it is needed. There is presently no such evidence but, if it were to emerge, the Secretary of State is prepared to exercise the power to cap fees.

--- Later in debate ---

[Lord Grimstone of Boscobel (Con)]

My Lords, in moving Amendment 8, I am pleased to speak also to Amendments 9 to Clause 27. Both are in my name. Clause 27 provides a power to apply provisions of the Bill again in order to act swiftly in the event of another wave of coronavirus requiring further mandated closures.

Amendment 9 would ensure that the power can be used for mandated closure after the protected period in the Bill, whether before or after the Bill is passed, and whether or not the closure requirement has ended when regulations are made. Amendments 8 and 9 also clarify the meaning of a closure requirement, and more closely align the drafting with corresponding provisions of Clause 4. We have seen that the Covid landscape can change very quickly; Amendments 8 and 9 are therefore to ensure the power is clear and robust for any new waves. I beg to move.

[Lord Fox (LD)]

My Lords, I shall reserve almost all that I shall say about Clause 27 for the next debate—but it is good, if Clause 27 survives, that its language should be consistent with the other parts of the Bill. However, we shall debate its existence later.

Amendment 8 agreed.

--- Later in debate ---

Debate on whether Clause 27 should be part of the Bill.

[Lord Fox (LD)]

My Lords, Clause 27 would establish the Henry VIII power, which has drawn the ire of the Delegated Powers and Regulatory Reform Committee—so this speech will come as no surprise to the Minister or, indeed, the noble Baroness, Lady Bloomfield, who heard a slightly different version of it earlier this week. Thereby hangs a tale, because this is a consistent practice of the Government in legislating not just for the present but putting in place measures whereby the Bill cannot just be continued or rolled over but rolled over and substantially changed. In this case, Clause 27 gives Ministers very broad discretion to change how the Bill would work in future periods of coronavirus control. It would allow changes of a kind that would give rise to serious policy issues and this ought not to be a matter for secondary legislation.

Turning to the detail, the Bill applies to business closures that took place in two specific periods—11 March 2020 to 18 July 2021, for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. However, Clause 27 gives the Secretary of State powers to make regulations that allow the Bill to apply to future periods of coronavirus control.

--- Later in debate ---

[Lord Grimstone of Boscobel (Con)]

My Lords, I am grateful to the noble Lord, Lord Fox, and the noble Baroness, Lady Blake, for notification of their intention to oppose the Question that Clause 27 stand part of the Bill, and for highlighting the concerns expressed by the DPRRC. I also listened carefully to the comments of the noble Lord, Lord Thurlow, of course.

As has been stated in both the other House and this House, we have already seen with the omicron variant that the future of the pandemic is uncertain. I believe that the power in Clause 27 is important because it provides the Government with the ability to take a flexible and targeted approach to reapply any or all of the provisions in the Bill to respond to the specific circumstances of any future periods of coronavirus. None of us can predict what will happen. I assure noble Lords that we will of course always exercise this power in accordance with human rights.

Having said that, we are grateful for the report of the Delegated Powers and Regulatory Reform Committee. I acknowledge that it makes some important points, which I will consider carefully as we prepare for Report.

[Lord Fox (LD)]

I am not sure whether I have to withdraw, but I thank the Minister for his comments. We look forward to consulting between Committee and Report. This is important. I cannot speak for the noble Baroness, Lady Blake, but I suspect that we would both consider it necessary to take this forward in the event that the Minister was unable to meet the DPRRC at least most of the way.

Clause 27, as amended, agreed.

Moved by

[Lord Fox]

10: After Clause 27, insert the following new Clause—
“Review of the impact of this Act
(1) Four months after the day on which this Act is passed the Secretary of State must publish a review of the impact of this Act and whether it has provided tenants and landlords with an effective process of arbitration.(2) The review in subsection (1) must make an assessment as to whether awards issued under this Act have been given in a fair and consistent manner.(3) The review must also include an assessment as to whether further guidance should be issued as a result of its findings.(4) The Secretary of State must lay a copy of the review before both Houses of Parliament.”Member’s explanatory statement
This amendment would require the Secretary of State to review the impact of this Act four months after the Act has been passed.

[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.

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[Lord Grimstone of Boscobel (Con)]

My Lords, I rise with some sadness, given that this is the last group. I thought that we were getting into the swing of it this afternoon. I should have hoped for further groups in which noble Lords could have demonstrated their expertise.

Amendment 10 proposes a new clause after Clause 27. I thank the noble Lord, Lord Fox, for his contribution and the noble Baroness, Lady Blake. I am also particularly grateful for the support of the noble Lord, Lord Thurlow.

The Government recognise the importance of appropriately reviewing legislation. I would like to reassure the noble Lord and the noble Baroness that the Bill contains appropriate means of monitoring the arbitration system, which is the essence of the Bill, including the awards made by arbitrators. The period under the Bill for making an application for arbitration is six months, and we anticipate that cases should be resolved as soon as possible thereafter.

The Bill already requires approved arbitration bodies to provide a report to the Secretary of State if requested. This can include details of the progress of arbitrations and the awards made. The Bill also requires arbitrators to publish their awards and reasoning. This will provide transparency and help with consistency of approach. If the need arises, the Secretary of State can also issue updated guidance to arbitrators, for example to clarify or add any points that may arise.

It is neither necessary nor beneficial to require publication of a review within just four months of the Bill being passed. That could slow the arbitration process and the prompt resolution that the whole scheme intends, should parties to arbitration and arbitrators await any findings and any new guidance. I appreciate that the noble Lord and the noble Baroness have proposed this with good intentions, but I ask the noble Lord to withdraw his amendment.

[Lord Fox (LD)]

Turning the telescope around the other way, the reason for specifying four months was the Government specifying six months in Clause 9(2). It seems perverse to have a review that comes after the process has essentially ended. That is the problem. I acknowledge the point made by the noble Lord, Lord Thurlow—I shall always remember his name; “That’ll learn you”, as they say where I am from—and I accept his point that three to four months is too short to review this. Therefore, six months is too short for the cut-off point. In a strange way, the noble Lord, Lord Thurlow, kind of makes my concern clear. If we are to review this, the review needs to come when changes can be made and when significant numbers of potential future cases are better served by the process. Does the Minister agree?

[Lord Grimstone of Boscobel (Con)]

My Lords, I think I will stick by my previous comments. I believe that not just the interests of landlords and tenants but those of the country are best served by getting on with this. Even though I respect the points that the noble Lord made, I stick with my previous comments.

[Lord Fox (LD)]

I thank the Minister for his comments, which I clearly do not agree with. Everybody’s interests are best served by getting on with something as long as what we are getting on with is a good thing. As someone who climbs and rambles, I know that heading off in the wrong direction and keeping walking for a period before starting to assess the direction in which one is walking is not a good idea. What one does when one sets out on a journey is check and check again, and make changes. This amendment would make sure that any trimming that is required to add direction is done in time for it to have a meaningful effect on the outcome of the largest possible number of cases. Having said that three times in three different ways, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

Commercial Rent (Coronavirus) Bill

Lord Fox Excerpts

Report stage
Wednesday 9th March 2022 Lords Chamber

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

My Lords, the amendments proposed to Clauses 2, 9, 23 and, to some extent, 27 are the result of extensive discussions with Welsh Ministers, who expressed their wish that the delegated powers in the Bill be redrafted to clarify areas of Welsh competence in recognition of the importance of the Bill’s policy to Welsh businesses.

The amendments to Clause 9, regarding extending the period for making a reference to arbitration, clarify that the power to extend the arbitration reference period can be exercised for English business tenancies or for Welsh business tenancies, as well as for both. The amendments to Clause 23 decouple the moratorium period and the period for making a reference to arbitration. The moratorium period will end six months from Royal Assent, unless extended.

New Clause 23A provides that the UK must seek the consent of Welsh Ministers to extend the Bill’s moratorium period for Welsh business tenancies in respect of devolved matters. In relation to Clause 27, which is the power to reapply the Bill to a future period of coronavirus, I have tabled an amendment to enable regulations under this clause to be made just for English business tenancies, or just for Welsh business tenancies, or for both. The amendments to this clause also provide that the UK Government will seek the consent of Welsh Ministers on the use of powers to reapply the Act for Welsh tenancies in response to future periods of coronavirus-related business closures, where the provisions are devolved. In addition, in the event of new coronavirus restrictions in Wales, new Clause 27A has been included to enable Welsh Ministers, concurrently with the Secretary of State, to use the power to reapply the relevant moratorium provisions to Welsh business tenancies. I am pleased to confirm that the Senedd has now voted to support the legislative consent Motion in relation to this.

As noble Lords will be aware, the Delegated Powers and Regulatory Reform Committee published its report on 3 February. Following careful consideration of this report, I have now made several amendments to Clause 27 in order to address issues raised by the committee. I thank the committee for bringing this matter to the attention of the House. Primarily, the amendments limit the breadth of the Secretary of State’s powers to reapply the provisions of the Bill in the future. The amended power would allow for targeted modifications to accommodate new dates and to make adjustments to moratorium provisions to take account of new timeframes. However, it would not permit changes to the operation of the arbitration process or policy. The Secretary of State would retain the ability to make different provision for England and Wales, and to make incidental, supplemental, consequential, saving or transitional provisions. I beg to move.

[Lord Fox (LD)]

My Lords, it is pleasing to see so many more noble Lords attending this debate than there were in Committee, when there were just four of us—two of whom have subsequently come down with coronavirus. So your Lordships have been warned.

This group of amendments is testimony to the fact that the Minister listened in Committee, and has attended many meetings and taken note. For that, the Minister and the Government should be congratulated and thanked in broad measure. I highlight in particular Amendment 21, which, as the Minister set out, addresses the issues highlighted by the DPRRC. This was a serious issue, and the Minister has effectively addressed it. It is a welcome change and something these Benches were particularly concerned about it, and it was good of the Minister to have taken it on. Also, conversation with the Welsh Government has been extremely successful, and that is borne out by the legislative consent that the Minister and Government have received. Overall, we welcome this group of amendments and think them a very good improvement to the Bill as we now see it.

--- Later in debate ---

[Lord Lennie (Lab)]

My Lords, Amendment 2 builds on the debate in Committee. The House will be pleased that I will not repeat all the arguments put forward then, but it is worth saying at the outset that this amendment is in response to severe pressures that businesses, tenants and landlords are under following an extremely difficult trading winter, plus the economic pressures of national insurance increases, energy price rises and escalated inflation. The clock is ticking loudly.

Arbitrators will be dealing with the cases that could not be resolved through voluntary measures between the parties. These will include in the main the most complex, as well as those where a failure to act was in the hope that debt would just disappear. As a point of interest, it would be beneficial to know from which sectors these outstanding cases come—not geographically, but from which sectors of economic activity. Perhaps the Minister could respond.

In Committee, the Minister—whom I paraphrase—told us not to worry about the arbitration service and that all would be well and sorted out in due course. Can he tell us what his optimism is based on? Have the Government made an assessment about the demands that will be made on the service, beyond simply the number of outstanding cases? If so, can we see the evidence of that assessment? Also in Committee, the Minister said that the Government supported the market-based approach in which arbitration firms would move things around to get over the expected spike in demand. The Minister said that he had been reassured by the arbitration firms of their ability to cope. But, without a detailed assessment or understanding of both the volume and complexity of cases, coupled with a change in the nature of the work that arbitrators will be asked to carry out—which the noble Lord, Lord Fox, will introduce in a later amendment, on behalf of the noble Earl, Lord Lytton—this would appear to be wishful thinking.

If in reality there is either an insufficient number of arbitrators, or too many complex cases, or both, this reliance of the market-based approach may be something the Government come to regret. So will they keep the progress in clearing the backlog of cases under review and report back to Parliament from time to time? I have no doubt about the quality and excellence of the arbitration service itself across the whole of the UK, but we are concerned that the Government have not undertaken an assessment of the numbers and the resources available in order to be fully satisfied that all arbitrations can be conducted in good time.

Amendment 15 proposes that, when the Government issue guidance to arbitrators aimed at enabling better outcomes, Parliament should be informed. Some concern has been expressed, in particular by small businesses, that the draft guidance produced may not be fully appropriate to the arbitration process. This is turn raises the prospect that arbitrators’ decisions are likely to be distorted. So Amendment 15 adds a layer to safeguard against such an occurrence by asking the Government to bring statutory guidance to Parliament before it is issued. In both the Commons and in Committee we raised the need for a review of the Bill’s provisions to ensure that the process is being applied transparently, fairly and consistently. While we may not have convinced the Government to include a specific review mechanism, can the Minister assure the House that the operation of the Bill will be carefully monitored?

Finally, on the many thorny questions of viability, can the Minister tell us what engagement is being undertaken with stakeholders to stress test the Government’s draft guidance on this to make sure that it is fit for purpose? I look forward to the noble Lord’s response.

[Lord Fox (LD)]

My Lords, I will speak to Amendments 2 and 15 in my name. Amendment 2 is important because it is important to have the arbitrators in place to deliver this service. The purpose of Amendment 15 is to probe the guidance notes, because in Committee that guidance was out for consultation. It is important to get a chance to air some of the issues thrown up from it and to get a sense from the Minister of where we are and when your Lordships’ House will see the final draft—I hesitate to use the phrase “final draft”, because I hope he can confirm that it is a live document and will develop over time alongside experience of this process.

The noble Lord talked about stress testing. It would be helpful if the Minister, during the process of monitoring the guidelines, talked to those who have been involved in arbitration about their experience so that they can be improved over time. Can he confirm that he will?

The Government’s instinct to try to keep this simple is correct, but sometimes simplicity can leave ambiguity. I think some of that has come through in the responses they may well have received. One way of removing that ambiguity is better use of templates, which is one of the responses I have received from people on this. Can the guidelines be better used to genuinely short-circuit the process and therefore reduce costs for the proponents’ way?

A second real issue is the definition of “viability”. We had a debate on that at Second Reading and in Committee; I do not propose to return to it, but there are issues around viability that concern businesses, particularly seasonal ones. There is scope within the guidelines—I have been given this advice by some seasonal businesses—to better define the role of seasonality when looking at the viability of these businesses. I would appreciate the Minister’s thoughts on those issues.

Finally, there is an underlying suspicion from some tenants that large-scale landlords, some of whom have experience in previous types of dispute, will game the system and use their financial muscle to take advantage. They fear that these well-resourced landlords will go for the most expensive options, bid up the costs and put the process beyond the means of small independent traders. Will the Minister ensure that the arbitrators are vigilant in this regard? I would be a bit hesitant here, because there is a potential conflict of interest for those arbitrators—the bigger the job, the larger the potential fee. We then come to important issues around fees. The Minister needs to set very clear guidelines to the arbitrators on that issue, such that they are not bidding up the process or creating the opportunity for big companies to flex their financial muscle.

[Lord Grimstone of Boscobel (Con)]

My Lords, I am grateful to the noble Baroness, Lady Blake of Leeds—originally—and the noble Lord, Lord Fox, for raising their concerns about ensuring that arbitration bodies have adequate arbitrator capacity and administrative capability. I am sorry that the noble Baroness cannot join us today and wish her a speedy recovery, although of course I welcome the noble Lord, Lord Lennie, who is participating in her place. I agree that a number of crucial points have been made in this short debate. The need for arbitrator capacity has been a key consideration in designing the scheme.

The Bill adopts a market-based approach. This means that several arbitration bodies will be approved and deemed suitable to administer the scheme, a point which I will return to in a moment. I believe this is the best way to ensure that we maximise capacity, because arbitration bodies will be able to use their intimate knowledge of matching arbitrator skills and experience to cases. This Bill also helps maximise capacity by empowering approved arbitration bodies to design and optimise their internal workflows to make best use of their own and their arbitrators’ capacity.

The Government designed an approvals process which specifically asked arbitration bodies to evidence their capacity. The deadline for applying has now passed and an internal sifting process is under way. As the sift is ongoing, I cannot comment on the details yet, but I can state that 12 arbitration bodies have applied. This is a very pleasing indicator of the interest being shown in the scheme. To an extent, it shows that the market mechanism looks to be working. Given the breadth and content of the applications, I am confident that the approach we have taken quite rightly empowers arbitration bodies to apply their experience and expertise.

The noble Lord, Lord Lennie, asked about the number of cases. In light of recent intelligence from the mediation policy in New South Wales, Australia, we have adjusted our current estimate of the expected number of arbitration cases. It is important to note that there is still some uncertainty around these estimates, but in the central case we now estimate 2,500 arbitration cases in England and Wales. This is a significant reduction from the previous estimate of 7,500 cases in the central case. On that basis, if we were to discuss this Bill for the next few months, we might have no cases left at all. The noble Lord also asked about the sectors involved. I can confirm that closed sectors included retail, hospitality, personal care, leisure and the arts, and some others, but our evidence suggests that most outstanding rent debt falls within these sectors.

The reduction in estimated cases is a positive sign for both the scheme and the capacity of the arbitration market. As I have stated, I hope this number will reduce further as landlords and tenants continue negotiations. My officials are engaging extensively with arbitration bodies to ensure that we offer as much support as possible in helping them deliver this scheme. I hope that reassures noble Lords that we are engaging with the arbitration bodies on capacity and therefore request that this amendment be withdrawn.

Turning to Amendment 15, I am grateful to the noble Lord and the noble Baroness for raising the matter of laying statutory guidance before Parliament. There is no doubt that the statutory guidance will be very important to arbitrators’ performance of their role. The Government take this very seriously. We want to ensure that the guidance is genuinely useful to and used by arbitrators. That is why we have already published a draft of the guidance to allow for stakeholder input. This draft has been very well received by stakeholders—in particular the guidance on the assessment of the tenant’s viability, in answer to the noble Lord, Lord Lennie. My officials are having ongoing discussions with stakeholders which will inform the final version. This will take into account the comments made by the noble Lord, Lord Fox. We expect the final guidance to be published as soon as possible after Royal Assent.

We are committed to ensuring that the guidance is accessible to all. That is why the final version will also be published on GOV.UK. I am pleased to confirm that we will also write to all Peers to share a copy of the guidance when published and place a copy of it in the Libraries of both Houses. I assure the noble Lord, Lord Fox, that if experience shows that the guidance needs to be updated in any respect as the scheme unfolds, we will do so and make sure that any such changes are publicised.

I hope that noble Lords are reassured by this. We plan to make the guidance widely available and share it with your Lordships. I hope that, on this basis, the noble Lord will feel able to withdraw his amendment.

--- Later in debate ---

Moved by

[Lord Fox]

3: Clause 8, page 6, line 14, leave out paragraph (e)
Member’s explanatory statement
This amendment and the others in the name of the Earl of Lytton to Clause 8 are to avoid any ambiguity as to the role of the appointing body and independence of the arbitrator pursuant to the Arbitration Act 1996, to prevent unilateral objections that might delay or frustrate the process and to rely instead on the parties’ existing rights under the Arbitration Act 1996 jointly to remove an arbitrator.

[Lord Fox (LD)]

My Lords, I rise to speak on behalf of the noble Earl, Earl Lytton, who, as previously advertised, is the second member of the “Covid 2” in this team. His absence is disappointing for two reasons. First, he is not here to make these speeches and I have to do so on his behalf, and secondly, his wisdom on the issue of property is second to few in your Lordships’ House. The nature of these amendments points to the direction of the advice that he would have given your Lordships’ House had he been here, and I will do my best to represent that. I am given to understand that the amendments that the noble Earl tabled are supported by the RICS, which focuses their purpose.

I will speak to them in groups. In the Clause 8 amendments, the noble Earl’s point is that the appointing body that oversees the function should not carry out more than a general monitoring of the administrative good order of the process. The reason behind the noble Earl’s point is that he is anxious to ensure that the terms of Arbitration Act 1996 are not circumvented, so perhaps the Minister can set the Bill in this context with respect to the Act.

At the heart of the Clause 10 amendments is the expectation that the appointing bodies do not materially alter their screening and selection processes. The noble Earl’s point is that on potential conflicts of interest, they are almost wholly reliant on self-disclosure by potential appointees, so they would frequently have no means of checking the responses for accuracy. I would welcome the Minister’s view on this.

The purpose of the Clause 19 and Clause 20 amendments is to make it permissible in a complex case, or cases, for the appointing body to demand from the parties that a clear statement of the issues and scope of evidence be placed before the arbitrator. Any fee specified in advance should be able to rely on the statement, but also on providing a broad estimate of the applicable arbitrator time and rate, where a fixed fee is impractical. I think what the noble Earl is driving at is that the arbitrators should not be signing a blank cheque for the work they are going to do; they deserve to have a scope to understand what it is they will be arbitrating.

Those are the groupings as the noble Earl set out. For my part, I hope to hear how the Minister and his department will balance these important points from the noble Earl, Lord Lytton, and the RICS, with the need to keep things as simple and cost-effective as possible. I think this is possible but I want to hear how the Government will absorb these two issues. I beg to move Amendment 3.

[Lord Lennie (Lab)]

The noble Lord, Lord Fox, raises the central concerns of the struck-ill noble Earl, Lord Lytton, about the expectations of arbitrators. I would add that he seemed to suggest in Committee that the role of arbitrators in this legislation is inconsistent with the expectation of arbitrators in the Arbitration Act—that is, they decide either one way or the other between two competing cases, rather than trying to filter between the cases to find some remedy between the two.

[Lord Grimstone of Boscobel (Con)]

My Lords, I apologise—I was caught short by the speed with which we are moving through these amendments. Before I respond to these points, I thank the noble Earl, Lord Lytton, for the amendments he tabled. I think everybody who heard him in Committee was impressed by his erudition. I am sorry he is not able to join us to debate these points, but on behalf of the House I thank the noble Lord, Lord Fox, for stepping into the breach and for his impressive grasp of the technical matters underlying these amendments.

I start by saying that I am fully aware of the concerns of arbitration bodies seeking approval under the Bill and my officials have been in continual contact with them to ensure that their views are registered and dealt with appropriately.

The Bill differs in some aspects from the Arbitration Act 1996, and provides that approved arbitration bodies have oversight over arbitrators where they have appointed them. In answer to the noble Earl, Lord Lytton, this was deliberate, and it gives certainty to landlords and tenants that arbitration will be managed efficiently and any issues with the process dealt with expeditiously. I can assure noble Lords that the oversight function is not intended to be onerous and is primarily administrative to ensure that the process runs smoothly. We do not expect bodies to continually monitor proceedings, but only step in where a party has a legitimate complaint or new information comes to light, raising a concern. I hope this reassures the noble Lord, Lord Fox.

Under the Bill, arbitration bodies can decide on unilateral removal requests, and this was also deliberate to avoid adding to pressure on the court system. The bodies should apply the same principles in case law as the court, including that there is a high bar to removing an arbitrator, and the parties should raise any concerns promptly. Frivolous, vexatious or unsubstantiated complaints should be quickly dismissed. Complaints of any substance should be rare, given the rigorous pre-appointment checks that bodies will doubtless carry out. I am pleased to clarify the point raised by the noble Earl in Committee: it is open to the approved arbitration bodies to charge a fee for dealing with a removal application. The intention is that this may disincentivise frivolous or vexatious complaints. In addition, the arbitrator can require an obstructive party to pay a greater share of the arbitration fees. We will include this clarification in the guidance to which I referred earlier.

I appreciate that there is concern about the extent to which arbitration bodies have immunity in respect of their functions. This is an important point that has been raised; I am considering it and will return to this issue at Third Reading.

[Lord Fox (LD)]

I appreciate that latter point, and the conflict of interest is a concerning issue, particularly around how arbitrators are able either to sign off on that or not be required to do so.

[Lord Grimstone of Boscobel (Con)]

The noble Lord makes a good point on that, and I hope that all this provides reassurance to the noble Lord, Lord Fox, in his proxy role regarding Amendments 3, 4 and 5 and that he will now not press them.

Turning to Amendments 8 and 9, the Bill’s arbitration scheme is for parties that cannot reach agreement. It should not apply if the protected rent debt is covered by a company or individual voluntary arrangement, or by certain restructuring plans and schemes under the Companies Act 2006. The Bill therefore does not allow a reference to arbitration where such an arrangement has been approved. If, when the Bill scheme is open, such an arrangement has been proposed but not decided, the Bill seeks to preserve the parties’ positions. This is why a party may apply for arbitration but an arbitrator may not be appointed while the decision on the arrangement is pending. If the proposed arrangement is then approved, arbitration should not be available, so, in that instance, the Bill prevents an arbitrator being appointed.

This is important, but it should not be burdensome for approved arbitration bodies. We will set out in guidance a clear and quick process based on tenant disclosure to check whether there is an approved or proposed arrangement to limit administrative burden on the bodies. However, we should not use limited arbitral capacity to determine this. I hope that I have explained convincingly why Amendments 8 and 9 are not necessary or appropriate.

Finally, I thank the noble Lord for raising the important issue of arbitration fees. I turn first to Amendment 10. A cap on fees differing with the complexity of the dispute may seem helpful; however, complexity is subjective and difficult to define and measure. It would therefore be hard to monitor adherence to such a cap. Landlords and tenants may worry that their case would be considered complex, resulting in higher fees, which may discourage SMEs from applying. Of course, a key tenet of this Bill is that this should be an inclusive process and open to all. I hope that explains, for reasons of practicality, why I cannot accept the amendment from the noble Earl and noble Lord on the fee cap.

Amendments 11, 13 and 14 in effect remove the requirements for advance payments of arbitrators’ fees and expenses and oral hearing fees. However, it is fundamental that the parties know in advance how much arbitration will cost to avoid deterring them from using the scheme. A key gain—another key tenet—is that this scheme is intended to be fast and low cost. The arbitration mechanism is focused and based on the parties’ formal proposals and supporting evidence. Oral hearings should concern those proposals and evidence and should not require lengthy cross-examination or experts. Consequently, costs should be predictable.

Requiring fees to be paid in advance prevents a party frustrating the process by refusing to pay. It also avoids arbitration bodies having to take action to recover unpaid fees. Arbitration bodies should be reassured that it is perfectly acceptable under the Bill for them to set a higher fee for large-scale disputes, and vice versa. For these reasons, I hope that the noble Lord will understand that I must stick to the position that fees should be paid in advance.

Finally, I turn to Amendment 12. The scheme must of course be accessible to SMEs, as I have previously said, but the general rule of splitting approved arbitration body fees and expenses 50:50 is important. That even split means that neither side is incentivised to make the process more complex or lengthier than it needs to be. I believe that we should be wary of interfering with this. Of course, the exception is where a party has behaved obstructively, in which case the arbitrator can require them to pay more than 50% because of their conduct. As I have mentioned, it is perfectly acceptable for approved arbitration bodies to set fees payable in advance that differ depending on the size of the parties involved. I hope that all provides a satisfactory explanation to the noble Lord, Lord Fox. I thank him and of course the noble Earl, Lord Lytton, for their close attention to these matters, and I hope that he will not press these amendments.

[Lord Fox (LD)]

My Lords, I thank the Minister for his comprehensive answer on these amendments. I am not sure how much cheer the noble Earl will be getting from the answer, but he will I hope be able to respond on his own account at Third Reading.

For my own part, I think the Minister’s response that neither side is incentivised to increase the costs is a bit—if he does not mind me saying so—naïve, because that is exactly what has been happening where the big operators have flexed their muscle to, in a sense, push the smaller operators into a corner. So I do not agree with that point, and it is perhaps something that the Minister could reconsider. With that, I beg leave to withdraw the amendment.

Amendment 3 withdrawn.

Commercial Rent (Coronavirus) Bill

Lord Fox Excerpts

3rd reading
Tuesday 15th March 2022 Lords Chamber

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

My Lords, it is a pleasure to lead this Bill on Third Reading. As we are all aware, this legislation supports the Government’s important aim of mitigating the impacts of the pandemic. The Bill does this by protecting certain rent debt and establishing an arbitration scheme, which has been designed to balance the impact on both landlords and tenants. It has therefore been gratifying to see the level of support for the Bill across the House.

Turning first to the government amendment, I am grateful to the noble Earl, Lord Lytton, and the RICS for sharing their experience and considering the practical applications of the Bill’s provisions. I said on Report that I would consider and return to a point about the extent to which arbitration bodies may have immunity. This technical amendment follows that consideration.

Section 74 of the Arbitration Act essentially protects an arbitration body from incurring liability in relation to a function of appointing an arbitrator. Amendment 1 would provide that Section 74 also applies where approved arbitration bodies exercise their function of removal of arbitrators under the grounds listed in the Bill. The bodies will thereby have immunity for things done or omitted in the discharge of this function unless they act in bad faith. I beg to move.

[Lord Fox (LD)]

My Lords, this amendment is testament to the power of remote control over this Bill by the noble Earl, Lord Lytton, and we on this Bench welcome it. I am interested that the Minister was able to announce on Report that a large number of arbitration organisations had already been recruited to take part in this important activity. To that end, I am surprised that they did so without some assurance of immunity as now offered by this amendment; I would be interested to hear what the expectations of those organisations were, given that it is only now that that immunity is emerging. With that small question, we will support the amendment.

[Lord Grimstone of Boscobel (Con)]

My Lords, in answer to the noble Lord, Lord Fox, what I said on Report was that 12 bodies had indicated an interest in applying for this. The process of approval is under way and, no doubt, this clarification will come to light and be welcomed by them during that process.

--- Later in debate ---

[Lord Lennie (Lab)]

My Lords, I thank the Minister for his customary courtesy and thoroughness in handling this somewhat uncontentious Bill. In fact, the Bill has been so successful that the hundreds of thousands of cases which were presumed to require arbitration are now down to either the thousands or the hundreds. They are certainly a reduced number and that is a credit to the Bill.

I place on record my appreciation for the contributions of the “Covid 2”—namely my noble friend Lady Blake and the noble Earl, Lord Lytton—who both provided detailed research, experience and commitment during the passage of the Bill, latterly from afar.

Finally, I thank the noble Lord, Lord Fox, in particular for his detailed understanding of the complexity of the Bill. I also thank the Bill team for their work and efforts in getting this Bill in shape. While we still do not know what the term “viable” means and whether there will be a sufficiency to arbitrate, time will tell—time which I have now run out of.

[Lord Fox (LD)]

My Lords, this has been a short process, but an interesting and important Bill. It is important for those businesses which found their entire business model cancelled by something over which they had no control. It is important that we find a way for those businesses to secure their future by sorting out the past. I think the Minister would agree with me that the overriding principle of this Bill has been to ring-fence the debt and then, through an arbitration process, share in the impact of that debt. I am pleased to see that the Minister is nodding as I say that.

The Minister has been sensitive to the advice he has got, and I am very pleased that the Government were able to agree with the Welsh Government on how this Bill would apply in Wales.

There was a period at Report when the number of Bill officials outnumbered the number of Peers two to one. Having heard the list that the Minister has just totted off, I can see that not all of them were there even then—but thanks to the Bill team for the hard work that it put in, and thanks to the Minister and the noble Baroness, Lady Bloomfield, as well as the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake. Because of Covid and dentists, we found ourselves depleted several times during this process, but I also thank my noble friend Lord Shipley—and, back in the Whips’ Office, keeping the legislative process on track, Sarah Pughe.

[Lord Grimstone of Boscobel (Con)]

My Lords, I thank noble Lords for their generous input on the Bill throughout its passage through your Lordships’ House. It has been a pleasure to lead on a Bill that has seen such wide-ranging support alongside rightful close inspection. I beg to move.