Commercial Rent (Coronavirus) Bill Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Lord Grimstone of Boscobel
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Commercial Rent (Coronavirus) Bill
Lord Grimstone of Boscobel ExcerptsWednesday 9th March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate Commercial Rent (Coronavirus) Bill 2021-22 View all Commercial Rent (Coronavirus) Bill 2021-22 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 116-I Marshalled list for Report - (7 Mar 2022)
“(6) “English business tenancy” means a business tenancy comprising premises in England.(7) “Welsh business tenancy” means a business tenancy comprising premises in Wales.”Member’s explanatory statement
The amendment would define “English business tenancy” and “Welsh business tenancy”.
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.
Lord Lennie (Lab)
My Lords, as the House may have spotted, I am not the noble Baroness, Lady Blake, as she is one of the two noble Lords who have fallen victim to Covid. We all wish her well for a quick recovery.
On this side of the House, we also welcome the Government’s moves, which follow on from representations made by the Welsh Government and the DPRRC. They show that the Government have listened and have acted upon the concerns raised. Perhaps the Minister could confirm in response that the Welsh Government are fully satisfied with these changes too, in which case we too are satisfied.
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.
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.
(a) English business tenancies,(b) Welsh business tenancies, or(c) English business tenancies and Welsh business tenancies.”Member’s explanatory statement
The amendment would clarify that the power to extend the period for making references to arbitration can be exercised for English business tenancies or for Welsh business tenancies only, as well as for both.
Member’s explanatory statement
The amendment would mean that the moratorium period is no longer defined directly by reference to the period under Clause 9(2) for making of references to arbitration. Instead the period under Clause 23(2)(b)(i) will end 6 months from Royal Assent, unless extended.
“Alteration of moratorium period
(1) In this section “extension regulations” means regulations under section 9(3) extending the period allowed by section 9(2) for making references to arbitration.(2) Where extension regulations made by virtue of section 9(3)(a) or (c) extend that period in the case of English business tenancies, the period specified in section 23(2)(b)(i), so far as it applies in the case of a protected rent debt under an English business tenancy, is extended for the same period of time.(3) Subsection (4) below applies where extension regulations made by virtue of section 9(3)(b) or (c) extend that period in the case of Welsh business tenancies.(4) The Secretary of State may by regulations made by statutory instrument extend the period specified in section 23(2)(b)(i), so far as it applies in the case of a protected rent debt under a Welsh business tenancy, for the same period of time.(5) Regulations under subsection (4) must provide for the extension referred to in that subsection—(a) to have effect for the purposes of this Part including the purposes of Schedule 2, or(b) to have effect for the purposes of this Part other than the purposes of Schedule 2.(6) The power to make the provision referred to in subsection (5)(a) is exercisable only with the consent of the Welsh Ministers to the extension having effect for the purposes of Schedule 2 other than the purposes of paragraph 3(6) and (7).(7) A statutory instrument containing regulations under subsection (4) is subject to annulment in pursuance of a resolution of either House of Parliament.”Member’s explanatory statement
The amendment deals with the effect of use of the Clause 9(3) power on the moratorium period under Clause 23(2). For debts under Welsh business tenancies the effect will depend on regulations, which would require the consent of the Welsh Ministers if a change in the moratorium period affects Schedule 2 (apart from paragraph 3(6) and (7), dealing with reserved matters).
“(1A) Regulations under this section may—(a) be made so as to apply in relation to—(i) English business tenancies,(ii) Welsh business tenancies, or(iii) English business tenancies and Welsh business tenancies;(b) exclude the provisions mentioned in subsection (7B)(a) to (c) from the provisions being re-applied in relation to Welsh business tenancies.”Member’s explanatory statement
The amendment would enable regulations under Clause 27 to be made just for English business tenancies or just for Welsh business tenancies (as well as for both) and also to exclude (in the case of Welsh business tenancies) provisions of the Act which deal with devolved matters in Wales.
“Concurrent power for Welsh Ministers to apply moratorium provisions again
(1) The Welsh Ministers may exercise the power conferred by section 27, concurrently with the Secretary of State, so far as it relates to the re-application, in relation to Welsh business tenancies, of—(a) Schedule 2 apart from paragraph 3(6) and (7),(b) section 23 so far as relating to Schedule 2 apart from paragraph 3(6) and (7), and(c) Part 1 and this Part, so far as relating to the provision mentioned in paragraphs (a) and (b).(2) Section 27 has effect in relation to regulations made by the Welsh Ministers by virtue of this section as if—(a) references to the Secretary of State were to the Welsh Ministers,(b) subsection (1A)(a)(i) and (iii) and (b) were omitted,(c) in subsection (7)—(i) the references in paragraph (b) to provisions of this Act were references to provisions mentioned in subsection (1)(a) to (c) above, and(ii) the reference in paragraph (d) to an Act of Parliament included a reference to an Act or Measure of Senedd Cymru,(d) subsection (7B) were omitted, and(e) in subsection (8)(b), for “each House of Parliament” there were substituted “Senedd Cymru”.(3) In Schedule 7B to the Government of Wales Act 2006 (general restrictions on legislative competence of Senedd Cymru), in paragraph 11(6)(b) (exceptions to restrictions relating to Ministers of the Crown)—(a) omit the “or” at the end of paragraph (vii), and(b) after paragraph (viii) insert “; or(ix) section 27 of the Commercial Rent (Coronavirus) Act 2022.””Member’s explanatory statement
The amendment would insert a new Clause enabling the Welsh Ministers, concurrently with the Secretary of State, to use the section 27 power to apply again the moratorium provisions specified in subsection (1)(a) to (c) of the new clause in relation to Welsh business tenancies affected by new coronavirus restrictions in Wales.