Commercial Rent (Coronavirus) Bill

Paul Scully Excerpts

2nd reading
Wednesday 24th November 2021 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I beg to move, That the Bill be now read a Second time.

We have made some incredibly difficult decisions, including closing certain businesses, to stop the spread of the virus during the covid pandemic. To minimise the impact on businesses, we have put in place temporary measures to stop evictions of commercial tenants for unpaid rent, restrict landlords’ ability to seize goods to recover rent owed, and prevent landlords and other creditors from instigating certain insolvency proceedings. While those measures offered much-needed protections, they also meant that in many cases rent on commercial premises went unpaid and businesses accrued significant rent debt, estimated to be £6.97 billion across the UK over the pandemic.

We are already seeing the economy bounce back, but now we need to begin the work of preparing for a new economy post covid. We cannot draw a line under covid, however. Understandably, it has not been possible for many businesses to pay the rent debt that accumulated during the pandemic. Over the past year, we have therefore worked closely with business leaders to find a solution to that accumulated debt.

In June 2020, the Ministry of Housing, Communities and Local Government published a voluntary code of practice that encouraged landlords and tenants to work together to negotiate and resolve that unpaid rent. I am reassured by the fact that many tenants and landlords have used the code. The indications are that overall rent collection is increasing but remains below average levels, especially in certain sectors.

There are cases in which negotiation is not working. The Bill will support landlords and tenants who cannot otherwise agree in resolving disputes relating to the rent owed. It will protect rent debts built up by businesses required to close during the pandemic. It will establish a new binding arbitration process that aims to find a proportionate solution that will provide commercial tenants and landlords with the clarity and certainty that they need to plan ahead and recover from the pandemic.

The Government have published an updated code of practice that sets out what the arbitration process will look like, the kind of evidence that will be considered and the key principles to which the process will adhere. The code can be used by any business to help it to negotiate and resolve rent disputes, even if it falls outside the scope of the Bill.

The Bill will protect jobs and enable a swift return to normal market operation. I make it clear that it covers only rent debt that it is attributable to the period from 21 March 2020, when restrictions on business began, until restrictions for the relevant sector were lifted, which generally happened over the spring and summer of 2021.

We believe that it is important that the Bill is targeted to support the businesses that most need it and provide swift resolution to remaining disputes, so it applies only to those tenant businesses that were mandated to close during the pandemic. They are the parts of our economy that were hit hardest, including restaurants, pubs and high street shops; the rent collected from those sectors is still lagging behind other parts of the economy. The income from many businesses in those sectors, even after they have opened their doors again, will not yet be back to normal. Many businesses will therefore have been unable to build up the cash reserves needed to pay off rent debt.

These efforts to support businesses, largely in the hospitality, personal care and non-essential retail sectors, will particularly benefit women, young people and people from ethnic minority backgrounds because of the higher ratio of persons from those groups who work in those sectors.

The primary purpose of the Bill is to implement a simple, binding arbitration system to resolve those outstanding rent debts. A tenant or a landlord can refer a case to arbitration at any time within six months of the Bill’s coming into force, and propose a solution to the protected rent debt. Arbitrators appointed by arbitration bodies approved by the Secretary of State will review proposals and then assess evidence from both parties to determine whether any relief from payment of the debt is appropriate. That could include a reduction from the total amount to be paid, cancellation of the debt, or an extension of the time period in which it should be repaid. The arbitrator will make an award, and if granting relief from payment of a protected rent debt is appropriate, the award will set out the terms.

The arbitrator must follow the principles established by the Bill. One key principle is that awards should only be made for viable businesses, or those that would become viable with an award of relief from payment. For example, a business could be granted an award that reduced the amount of debt owed if that reduction would allow it to become viable again. In this way, we are actively supporting businesses that will continue to prosper and grow, will provide jobs and will help the UK to build back better.

[Mr Toby Perkins (Chesterfield) (Lab)]

Will the Minister expand a little on how he expects the viability test to be met? It is obviously extremely important. During the pandemic, many businesses that applied for bounce-back loans and the like were told they could not have the loans because they were potentially unviable owing to the coronavirus. How is the arbitrator meant to assess whether a business is viable?

[Paul Scully]

I know that the hon. Gentleman is a champion of pubs throughout the country. We will be looking at those and at the hospitality sector in general.

The arbitrator will be able to take evidence from both sides—the Government will not be taking a doctrinal approach—and look carefully at the books and the profit to establish whether this is just the rent debt that occurred during that period of closure, rather than any other debts that the business might have. He or she will have a narrow focus.

[Mr Perkins]

I welcome the Bill—it is important that action is taken, even if it is retrospective—but often the very fact that the rent had to be found will have had impacts on other parts of a business’s funds. As the Minister works through the Bill, will he look carefully at the guidance to ensure that it does not shut out many businesses that could benefit?

[Paul Scully]

Throughout the Bill’s progress, we will continue to engage with Members on both sides of the House, but also with landlords and tenants. We want to make this work, and to resolve these issues speedily but in the most appropriate way. That is in the interests of landlords and tenants. We hope that the fact that the legislation has been announced and we are taking it through the House will send a strong signal to landlords and tenants and they will not have to rely on this in the first place; we would love it if people had the conversations and resolved the issues. Landlords want their units to be filled, and tenants want to ensure that they can continue in a reasonable way, and if they can pay they should do so, as they are at the moment, because the Bill relates only to a particular period of closure.

An arbitrator should not make an award if it would make the landlord insolvent. This works for both tenants and landlords, and support for businesses must not be to the detriment of a landlord’s solvency. The Bill also makes it clear that, if commercial tenants can afford to pay the rent debt without becoming unviable, they should pay. The arbitrator will consider financial records, and any other evidence considered appropriate to determine the viability of a business or the solvency of a landlord. We have engaged with arbitration bodies to develop this approach, and I am confident that it will deliver swift resolution for tenants and landlords locked in disputes. Officials’ engagements with potential arbitration bodies has also raised awareness of our proposals, with the intention that, if Members of both Houses approve the Bill, the system will be set up and ready to go quickly.

I have already mentioned the protections that the Government rightly provide to stop commercial tenants being evicted or their businesses being wound up owing to rent debt during the pandemic. The measures introduced during the pandemic were designed to be temporary, offering much-needed respite to businesses unable to trade. We have already extended protections to continue to support businesses as needed, and to provide the time required to draft the legislation and put it before both Houses for consideration. In place of those measures, the Bill establishes a targeted intervention.

While parties are able to refer cases to arbitration within six months of the Bill’s coming into force, and while arbitration is in progress, there will be restrictions on evictions, seizing of property and other measures of enforcement, and certain insolvency proceedings in respect of protected rent debt. That ensures that the parties who cannot agree have a chance to use this arbitration system to resolve protected rent debt before resorting to other legal remedies. I am confident that six months is enough time to allow tenants and landlords to apply for arbitration, but the Bill allows for the period to be extended if there is evidence that it is not long enough.

Throughout the development of the Bill, the Government have engaged extensively with tenant and landlord representatives. We launched a call for evidence in April, which gathered the views of tenants and landlords on the current protections and the voluntary negotiation approach, and asked for preferences on options for further solutions. The feedback was that while negotiations were taking place their voluntary nature was actually hindering progress in some cases, and nearly half the respondents said they agreed that a system of binding adjudication would resolve the outstanding rent debt. Since those findings, we have continued to work closely with business and landlord representatives to help shape the Bill and support negotiations, and, as I said to the hon. Member for Chesterfield (Mr Perkins), we will continue to do so throughout the Bill’s passage.

I have regularly met businesses and landlord representatives to discuss these proposals, and the issue of rent debt in the affected sectors in general. Following the Bill’s introduction, we have received support from several bodies representing commercial tenants and landlords. They recognise the efforts the Government are making to encourage continued negotiations, and that a system must be in place to be used when negotiations fail.

We have also had productive engagement with colleagues from the Welsh and Scottish Governments and the Northern Ireland Executive, and I thank them for their continued input and support. I have written to the Ministers from the devolved Administrations to inform them of the relevant aspects of the Bill and seek legislative consent where it is required.

The Bill provides a solution that should be used only when parties have been unable to reach agreement between themselves. We are still adamant that tenants and landlords should negotiate where possible, but we recognise that some may never reach agreement on what is owed and how it should be repaid. The protections that the Government implemented during the pandemic have been extended to give the time needed for these negotiations. They have offered much-needed respite for businesses fearing eviction and bankruptcy, but they cannot continue forever, and we must act to help the market get back to normal.

I am sure the House agrees that leaving this rent debt unresolved would be detrimental to UK businesses and landlords, and indeed to communities. I am glad to see that the economy is bouncing back, but it is unreasonable to expect all businesses to be able to pay off immediately all the rent debt that they accrued when they were closed. We have heard from businesses and from landlord representative groups that the voluntary approach will only get so far, and that a binding arbitration system will work to unblock this issue. The Bill will put an end to the temporary protections and clear up the unpaid rent debt that is stalling commercial tenants and landlords and preventing them from prospering. I commend it to the House.

--- Later in debate ---

[Paul Scully]

With the leave of the House, I will speak a second time to sum up the debate. I appreciate and very much value the constructive nature of the debate and the comments and positive notes on the Bill’s purpose. I shall concentrate my remarks on the issues raised that relate directly to the Bill. I do not apologise for the fact that the Bill is narrow.

The hon. Member for Richmond Park (Sarah Olney) asked why legislation did not go through earlier; we extended the moratorium for several months, rather than for just a quarter so that we could get the Bill right. We spent that time working with the arbitration services to make sure that we have the capacity and expertise—on which I shall say a little more later—that we need. We have also worked with landlords and tenants, because we have to strike a really delicate balance: we are, in effect, intervening on a contractual arrangement between two private bodies. A lot of the other support that the Government have given has been in the form of relief on various taxes, including business rates and VAT; through direct grants; or through the guaranteeing of loans. The Bill is very much about the moratorium, and our unwinding from that involves our stepping into private contracts, which we would not do without due care and attention.

The hon. Member for Brentford and Isleworth (Ruth Cadbury) talked about the scope of the Bill and eligibility. By targeting the support, we can be sure to get the arbitration cases through quickly and resolved quickly. We clearly need a solution to the debt and do not want cases to drag on for years. If the scope of the Bill were too wide, capacity would start to be swamped, so in trying to help as many people as possible we would end up helping nobody. It is really delicately balanced.

Nevertheless, I appreciate the fact that over the past 19 months there have been significant difficulties for people we have not been able to support with the £352 billion-worth of financial support we provided as we wrapped our arms, as best we could, around the economy to protect jobs, livelihoods and businesses. By resolving the rent debt for a business within the Bill’s scope, we will help not only that business, but its immediate supply chain and all the individuals who contribute towards its success, by getting that business back on a level footing. I hope Members understand why we have targeted the legislation in the specific way we have and how it will deliver support where it is most needed.

The hon. Member for Brentford and Isleworth also talked about the availability of arbitrators, as did several other Members. I reassure Members that we have worked closely with the arbitration bodies and the market is ready to deliver. Our engagement with arbitration bodies has raised awareness of the proposals and we will continue to engage with interested bodies so that the system is up and running as soon as the Bill comes into force.

We put out a call in respect of arbitration earlier this month and there have been a number of respondents. The arbitration bodies that have demonstrated an interest in becoming approved bodies are already widely recognised and respected in the field of arbitration for the accreditation services they provide to their arbitrators. That accreditation acts as a quality-assurance service. There is a statutory duty on approved arbitration bodies to ensure that the lists they maintain contain only arbitrators who appear to an arbitration body to be suitable by virtue of their qualifications or experience. An approved arbitration body also has a duty to remove arbitrators from a case on any one of the grounds for removal specified in the Bill—for example, when

“the arbitrator does not possess the qualifications required for the arbitration”.

The Secretary of State also has the statutory power to withdraw approval from a body if it is no longer considered suitable to carry out the functions of an approved arbitration body.

The hon. Member for Feltham and Heston (Seema Malhotra) asked how we are going to communicate the changes. It is important that the parliamentary process has signalled the introduction of legislation and, along with continued conversations between the Government and the Opposition, that will raise its profile, but we will have to do more direct communication through business-representative organisations, banks and accountants—the kind of intermediaries that all businesses tend to have. There is lots of work to be done, but we want to make sure that we get it right on the front foot.

On how much arbitration will cost and whether it will be affordable, the party that puts forward the case for an arbitration will pay an application fee to the arbitral body. If both parties agree, the fee can be split between landlord and tenant at the point of application. When making the award, the arbitrator must require the other party to reimburse half the fees paid or to pay

“such other amount as the arbitrator considers appropriate”.

The price will be set by the arbitration bodies, although the Secretary of State retains delegated powers to set a cap on the fees charged. For similar schemes, there is a £1,250 application fee, with additional costs if the parties choose to progress to a hearing. Our preference—not just about cost, but about speed so that we get things resolved for both parties—is an online, documents-based process to keep costs to a minimum and to ensure that the process is available to all.

The hon. Member for Feltham and Heston also asked about demonstrating viability.

[Seema Malhotra]

The Minister has given a figure of just over £1,200 as a comparable amount. Given the Secretary of State’s power to introduce a cap, is the Minister signalling the Government’s intention to introduce a cap and the amount it might be set at? If so, what is the assessment of affordability for the context in which the Bill has been introduced?

[Paul Scully]

I do not want to pre-empt further consideration of the Bill, further discussions with the arbiter or, indeed, the Bill’s passage, but it is clear that tenant businesses will already be struggling financially, given the problem that we are trying to solve with the Bill.

We will make sure that, if we do introduce a cap, that is done at a limit that is consistent with the market, with the overall aim of not preventing small and medium-sized enterprises from accessing the scheme. The cap, though, will be variable. It will be on a sliding scale relative to the amount of protected rent debt that we used to determine the cap should it come in, and we will ensure that it is proportionate for each case. We do expect otherwise viable businesses to be able to afford the cost of arbitration.

On viability, there is no specific definition of what constitutes viability, because, clearly, business models vary hugely. In clause 16, there are factors that arbitrators should consider when assessing the viability of a tenant’s business. Within the wider code of practice, there is also a non-exhaustive list of evidence that could be considered when determining viability and affordability.

Hopefully, that has covered a number of the direct issues. I will not go too heavily into some of the other areas that extend around high streets. Suffice it to say that having put £352 billion-worth of support into the economy—including into those hard-pressed sectors, including retail, hospitality, leisure and personal services —we have 352 billion reasons to get the next bit right to make sure that we can have the Reading East that I remember. Probably some of those businesses have gone since I was at university 30-odd years ago, when I enjoyed far too much hospitality—the Purple Turtle, the After Dark Club, the Turk’s Head, and the Ye Babam Ye kebab shop, he says going down a Ricky Gervais memory lane in Reading East. Indeed, I have also had many a happy meal in Don Fernando’s in Richmond. We want to make sure that we can protect these hard-pressed sectors.

[Matt Rodda]

rose—

[Paul Scully]

I will briefly give way to the hon. Gentleman if he tells me whether any of those businesses are still open.

[Matt Rodda]

They are still open, yes. I am grateful to the Minister for his tour of Reading town centre, and I am also a big supporter of many of those businesses. Will he come and visit Reading with me to look at the specific issues that some of the local businesses face, in particular how some of our small businesses on our local high streets cope when there is no longer a bank?

[Paul Scully]

The hon. Gentleman is absolutely right about the need for access to cash and access to banking services. I am always happy to come to Reading. It is important that banks—and post offices where banking pilots are under way—remain that cornerstone of social value on the high street.

Finally, I went off track when we started talking about Peppa Pig. Children in 118 countries know about Peppa Pig because it is a hugely important British brand and British export worth £6 billion to the economy—that is just Peppa Pig itself. I dare say, though, that the people behind Peppa Pig probably will not need the Bill. It will be those smaller businesses on our high streets up and down the country that do, and that is what this Bill is here to do.

The Bill provides that resolution for the remaining rent debt accrued by businesses required to close. It will deliver key Government objectives, protect jobs and help to prepare for a new, stronger economy post covid. I look forward to discussing the Bill further in Committee, but for now, I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Commercial Rent (Coronavirus) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No.83A(7)),

That the following provisions shall apply to the Commercial Rent (Coronavirus) Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 16 December 2021.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Rebecca Harris.)

Question agreed to.

Commercial Rent (Coronavirus) Bill (First sitting)

Paul Scully Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Seema Malhotra]

Q Mr Curran, do you have any additional comments to make on those areas, and do you feel confident that the scheme as outlined will work in practice?

Dominic Curran: The British Retail Consortium, in the call for evidence that the Government published last spring, did call for a scheme that extended the moratorium to a future date and ringfenced the protection of the arrears that arose during the process, and it called for a process of compulsory arbitration. At least at headline level and in terms of the core principles of the Bill, this is what we have called for and what our members want. We do welcome it.

We have a slight concern about the definition of a business tenancy. The Bill appears to suggest that it is only a tenancy that is not contracted out of the Landlord and Tenant Act 1954. We have been assured by officials in separate meetings that that is not the intention of the Bill and that actually the Bill covers any tenancy that would be within the scope of the 1954 Act, whether it is contracted out or not, which does give us some comfort. That might be an area you would want to clarify in the course of scrutiny of the Bill.

Engagement with officials and Ministers has been fantastic, actually, throughout the pandemic and through the drafting of the Bill. We have a similar concern to UK Hospitality about the approach that will be taken on viability. Some of the definitions that the Government have said they do not want to enshrine in legislation—which is, I suppose, understandable—will be left to guidance for arbitrators. More than ever, the devil will be in the detail on that. We would want to see what that guidance is as soon as possible to give as much clarity as possible to businesses that might be thinking about using this route.

We would want to make sure that that guidance also directed arbitrators to take as broad a concept of viability and affordability as possible, so that there is enough understanding of a business’s circumstances that they could build in an allowance for the uncertainty of future cash flow and turnover, not least because there will be tax rises coming from April onwards when this process will effectively kick in—both higher businesses rates liabilities for many businesses and further tax increases on Business Network International contributions. We would want to see as much certainty in advance as possible and as much understanding of the need for businesses to have a buffer to enable them to trade while all these adverse headwinds are hitting them. We certainly share some of the concerns of UK Hospitality. I think the approach taken on fees is exactly right, as Kate outlined. While there may be a nominal, reasonable amount to enter the arbitration process, we would want the process to be as straightforward as possible, particularly for smaller businesses, which will not have access to in-house or agency consultants to support them through the process, so that it really is open to all and seen as fair and equitable.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

Q Can you give us an idea from the retail perspective of how significant the problem of rent arrears still is?

Dominic Curran: I think it is less of a problem than it is for UK Hospitality. That is not to say that it is not a problem, but I think retail rent collection levels are higher than hospitality, as you would expect, given that the retail sector includes businesses that were allowed to open throughout the pandemic, particularly grocery and pharmacy businesses, so turnover has probably been higher proportionately in retail than it has been for hospitality.

I think it affects a smaller proportion of our sector in terms of the quantum of rent arrears, but it is still significant. It is estimated that there are still several billions of outstanding rent arrears in the retail sector during the pandemic period that the Bill covers, as far as we know. Some of that surveying does not take account of agreements that will have been reached off the books, as it were, or outside the formal rent collection dates, so it is an uncertain figure. When we have spoken to members, and this is an informed guesstimate rather than a thorough survey, it feels like we are at about 80% to 90% of rent having been collected and deals having been done, so it is a very small proportion of the outstanding rent liabilities that is left to be resolved. With each extension of the moratorium every three months, as we have seen over the past year and a half, and particularly with the announcement of this Bill and the process that it proposes, we have seen that percentage chipped away. Ever more landlords and tenants are reaching agreements. While it is a significant problem, it is probably less of a problem than it is for UK Hospitality, but it is still really important that even if businesses do not take advantage of the arbitration process, that process is there—if for no other reason than to help chivvy both landlords and tenants into making new arrangements.

[Paul Scully]

Q The code of practice will remain an important part of the solution. How has it helped over the past few months

Dominic Curran: In all honesty, members report that the code of practice did not aid them particularly. Its voluntary nature was the real sticking point. It was not necessarily the content, which was developed in very deep and meaningful consultation with us, UK Hospitality and other interested parties, but it was the fact that it was voluntary that was the sticking point. Because it was good practice, those who were going to use that approach did so anyway, almost regardless of the code’s existence, and those who were not going to use the approach did not feel like the code applied to them, because there were no sanctions on the requirement to negotiate in line with it.

What has helped—in so far as people are aware of it—is the suggestion, and Kate alluded to it, that if you do not negotiate in line with the principles of the previous code and the revised code, there may be some penalty in terms of costs being awarded against you in any subsequent arbitration process. That may help focus minds somewhat.

[Paul Scully]

Q Do you think signifying that we are legislating has helped move things on significantly? Have people priced this in to their discussions now?

Dominic Curran: I would not be able to say significantly, but certainly anecdotally speaking to members, yes, it has helped.

Kate Nicholls: I agree with what Dominic said. The code of practice content was really helpful, and it gave a steer towards negotiations and how you should negotiate in good faith. A mandatory backstop and a legislative backstop are absent. It was limited in its impact in bringing recalcitrant players to the table. When Ministers announced that they were intending to legislate, a third of our businesses still had no negotiations and a large amount of outstanding debt, with no agreement as to how that was to be treated. That has dropped from a third to 20% and it keeps getting chipped away every time we move further forward in the legislative process.

The introduction of the legislative backstop is really important. The code of practice principles will be important to guide discussions for those businesses that fall outside the legislative solution, because obviously there will be parts of the business that will not be covered by the arbitration process. It is about giving the legislative backstop and the clearer direction towards sharing the pain, coming to a negotiated solution and being able to support what would otherwise be viable businesses.

The ministerial forewords in the legislation and the call for evidence are immeasurably helpful in giving a clear direction that landlords should do whatever they can to support businesses that would otherwise be viable. That was the piece that was missing from the code of practice that gives a clearer steer of the intent of the legislation.

[Paul Scully]

Fantastic. Thank you very much.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

Q We have had evidence of concerns about the arbitration scheme—for example, whether there should be a single approved arbitration body and about the difference compared with other arbitration schemes in how the agreement is reached as to which arbitrator should be used. There is a concern that they should be legally qualified rather than just businesspeople, because of the nature of complex arbitration processes. There is also a question about confidentiality, which is the norm in such processes but is not specified in the Bill. Mr Curran, do you have any comments on those issues?

Dominic Curran: On the arbitrators who will be used, the Bill says, if I remember it correctly, that the Secretary of State will nominate or choose which arbitrating bodies will be eligible to provide arbitrators to the process, so it remains a bit of an open question. All I would say—having spoken to officials, this point is well understood and well heard—is that given the nature of the discussions that inevitably will be had during the arbitration process, we would prefer to see arbitrators who have a strong accountancy background, perhaps more so, or at least as much as, those who have a property conflict resolution background.

The nature of the process is to look at tenants’ accounts and to make sure that their income, liabilities and forecasts for turnover are such that they can pay a relevant and viable proportion of their rent arrears. So rather than it being a dispute over the interpretation of a lease or the duties of a tenant or a landlord, it should really be about understanding the finances of that business and enabling it to pay a proportion of rent between 0% and 100%, while being able to continue to trade viably at the same time. We certainly want to see the accountancy profession well represented in that.

Whether any other trade bodies, beyond those that represent accountants, are given the right to carry out the process by the Secretary of State remains to be seen. If you wanted to get the confidence of businesses that are tenants, however, you would want to make sure that you had accountants rather than property dispute arbitrators fulfilling the duty.

--- Later in debate ---

[The Chair]

We have a sound issue, Ms Leech. Hold on one second.

Melanie Leech: Can you hear me now? I will abandon the headphones. Apologies. Our view is that for the larger, more complex relationships, this scheme should not be the way forward. They should be taken as they would have been before the pandemic. Outside the confines of the ringfencing of this scheme, that will be through the courts. These are, ultimately, legal relationships, and the courts are there to resolve legal disputes. I think the scheme can work well for smaller businesses and less complex relationships, but for those larger, more complex relationships, redress should be through the courts, as it always was and will be again outside the confines of the scheme.

[Paul Scully]

Q I have a similar question to that I asked the last panel. From what you were saying, I think you agree that the legislation will be able to bring certainty to landlords. I know it is not a comfortable position to be in, with intervention in, effectively, a private contract, but it will give you some degree of certainty in the sense that you are pricing it into your thinking moving forward.

Melanie Leech: I think what is really important, not only for the individual property owners in the sector but for the market, the health of the sector and the future—I go back to that £1.2 billion GVA that we create every year—is that certainty that you, the Government, understand the importance of contracts as part of what makes UK real estate an attractive investment proposition for pension funds, saving funds and those institutional long-term investors. When we talk about property owners, that is largely who we are talking about. We are talking about our money as individuals, our pensions and savings. In order to protect them appropriately in these circumstances and to secure the future—particularly thinking about the levelling-up agenda, for example, and the investment that will be needed across the country—it was really important that, as part of this announcement, the Government made clear that, if tenants can afford to pay their rent, they should pay their rent in full, and that this scheme is designed to support and facilitate agreement being reached between tenants that are vulnerable and need support and property owners that can afford to give that support. That builds on what has already happened in the market, where millions of pounds of support has already been provided to the most vulnerable tenants. That underlying principle protects the sanctity of the contract for the long term and protects UK real estate as an investment proposition, which we badly need in this country, while also allowing the outstanding cases in which agreement has not been reached to have some kind of resolution.

[Paul Scully]

Thank you. Astrid, same question to you.

Astrid Cruickshank: I have to say that I think it is quite unfortunate that we need this system at all. I try to speak to all my tenants. I have four who just point-blank refuse to engage. I knew a finance director prior to covid who was always happy to take my call, so it was somewhat disappointing to find, when trying to speak to them to try to agree a way forward, that they just will not engage. I have to say that I have been able to unlock mine now, so unless there are further lockdowns—fingers crossed—I will not need to avail myself of this. I have stuck with the consultation process because I think it is important that there is a voice from a small landlord. People tend to assume all landlords are enormous, and I wanted to make the point that that is not the case.

[Paul Scully]

That point is very well made as well. Thank you.

[Mark Eastwood (Dewsbury) (Con)]

Q I have a question for Melanie. Some landlords have argued that a binding arbitration system would favour the tenant over the landlord. What is the view of the BPF on that?

Melanie Leech: I hope that a binding arbitration scheme will be a neutral process that allows both sides’ views to be heard and a resolution to be reached between those two positions. As I said in response to the Minister, the principles should be that someone who can pay their rent should pay it, but if they can demonstrate that they need support, because they cannot afford to pay their rent, that case should be heard, and a landlord who is able offer support should give it. I think those principles, if they remain in place and underpin the scheme, should lead to a fair outcome.

The other thing we have concerns about—although I think the process is designed to avoid this—is that it is not a case of both parties starting in an equal position. We start from the position that there is a contract that says that the tenant should pay rent, and the tenant is seeking support to set aside that contractual obligation. The evidence base is primarily driven by the tenant’s position; I have heard concerns that if a landlord wants to go into the arbitration process, they need evidence from the tenant to underpin their position, and, if the tenant does not provide that evidence, the landlord is at a disadvantage in the process.

The process is designed to deal with that by allowing them to initiate the process from a starting position that says the tenant should pay in full. If the tenant gives evidence to demonstrate why they need a concession, the landlord can consider that and put in a revised proposal before getting to arbitration. As long as that is in place, the landlord need not be disadvantaged by not having the information up front. It is important to recognise that the burden of proof for both viability and affordability is primarily on the tenant; it is only at the stage at which the tenant’s case is made, as it were, that the question of whether the landlord can afford to give a concession comes into play, at which time they also need to provide evidence. I think that the Government understand that, and that it is built into the process. That is one of the things that property owners will be nervous about.

--- Later in debate ---

[Peter Dowd]

Q Would you welcome further, more detailed discussions with the Department on these matters? It is important that we try to get this right, because we do not want to create more problems down the line. I think we have been here before in relation to those people who are regulated—whether that be social workers, doctors or nurses—so it is important that we get that right. Would you welcome more significant or more substantive discussions with the Department about how this should pan out?

Lewis Johnston: I would welcome more detail on exactly what the approval criteria would be and what the role of the approved suppliers under the scheme would be. There has been a good degree of engagement from the Department so far, but what the criteria would be has not yet been published. However, I know that they are coming shortly. That will be the crucial point in terms of assessing what the role of these appointing arbitration bodies would be.

[Paul Scully]

Q In the last sitting, Melanie Leech expressed concern about having a system like this set up for small landlord and tenant issues, compared with some of the bigger and more complex ones. How do you think arbitration services could cater for both sides?

Lewis Johnston: I understand the intention is that it would be the simpler, perhaps smaller party cases going through to the scheme, and I think that is correct. Given that the emphasis is on simplicity, accessibility and managing the costs, any scheme that had to accommodate the intricate, large-scale cases would encounter some problems in terms of balancing the two. Again, I point to precedents with things like the business arbitration scheme. It is difficult at this point to assess exactly what the appropriate fee level would be, because you would have to properly assess exactly how much work will be involved in each case—obviously not until they had come through—but I think that in the simpler cases that could be set at a level that was affordable. As some of Melanie’s members had made clear, it needed to be at quite a modest level for it to be accessible to them.

In terms of how the arbitration bodies would manage a variation in the complexity of cases, even it was perhaps the smaller, more simpler end of the spectrum, there will still be variation. We would maintain—this would apply to other bodies as well—lists and databases of arbitrators who would be suitable. Based on the nature of the case that came through, there would be a shortlist drawn up based on who had the requisite skill sets to handle that case. The pool that we would draw from should be broad enough to be able to cater to different types of cases and different sectors and so on.

[Sara Britcliffe]

Q In the simple case that you talked about, from your perspective what is the likely cost of that, including the legal fees of the tenants and landlords?

Lewis Johnston: I would not want to commit to exactly what it would involve until we got to that stage, but I refer again to the precedent set by our own business arbitration service, which is designed to produce an award within 90 days. It is meant to be documents only, and that is £1,250 plus VAT per party. If it was a very straightforward case—if it was documents only and it followed the same processes—I imagine it could be in the same ballpark in terms of fee level. The best thing would be to have real clarity around what the fees were and how they apply to each case, and for there to be perhaps an assumption against having a hearing, and, if there was a hearing to be requested, very clear guidance on what fee that would entail. Perhaps for a half-day hearing, a certain level. For the business arbitration scheme, there is an option for that. It is £500 for a half-day hearing. Again, the assumption is that the cost could be fixed at those initial costs per party, and that a hearing would not be necessary. It would be documents only.

Commercial Rent (Coronavirus) Bill (Second sitting)

Paul Scully Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Peter Dowd]

Q In terms of arbitration and the process available to commercial tenants, what can be done to ensure that they are aware of that process? We have lots of businesses under stress and strain, which we all understand—the Government understand that; we understand that. What do we need to do to get that message out and to give some reassurance?

Martin McTague: You will probably anticipate my first answer, which is that trade bodies are probably a good way of getting the message out. I think lawyers as well. The first thing that most people in this situation will do is to refer to their lawyer. There has to be a clear duty on lawyers to explain that arbitration is an option that they can take up.

In our experience, the smaller businesses tend to respond better to social media, so a BEIS publicity campaign based on social media contacts. The other obvious one is local government, which could do a lot to get this message back to retailers, especially in their area.

Jack Shakespeare: I support that, absolutely. As a trade body, engagement from the Department to us has been very positive. That communication has been great. We have been able to disseminate as much information as we could accurately and efficiently. I would echo that starting point. Again, use local government, lawyers and social media, recognise the characteristics across each sector and work with trade bodies to get the right messages across. They are obviously the experts in talking to those different businesses.

Andrew Goodacre: The communications have been covered well by my colleagues. To go back to your earlier point on what people have done to get through the crisis, we only do retail businesses, and they worked really hard as always. They have shown great creativity and determination, but one telling fact is that their level of debt has increased five times, by taking out bounce back loans, for instance. The larger retailers would have taken out a business interruption loan.

There was some research done in the summer of this year that suggested that the debt in independent businesses —which is not the usual business model; they do not normally do debt—is five times higher. It is estimated at about £2.2 billion. That has to be repaid. Then you have got rental debt on top of that. It leads back to this argument of viability. When you are assessing a business, you take a cold, hard look at its balance sheet. If a small business has a business loan or rental debt on there—and you have to counter the liability—before you know it, it is technically balance-sheet insolvent. It still may be viable as an operation, but there is a technical balance-sheet insolvency because of the level of liability it is are carrying, which it would not normally be carrying.

Whether it is rental or business loan debt, debt is a problem. Businesses have had to do it because they needed to survive. They wanted to trade and give themselves the chance of re-establishing themselves. Many are doing that. If we get a good Christmas, hopefully they can look to ’22 with some positivity.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

Q We talked a bit about the scale of the problem. Government signalled that we were going to legislate in this area. Can you give us an idea of what that did? Did it kick- start conversations? Did you see results that are now priced into the debate between landlords and tenants? Do you have any reflections on that?

Martin McTague: I saw a definite change in the atmosphere. I know the Minister will be aware of this, but I think there was some doubt as to whether you, as a Department, would go this far. Free-market instincts would suggest that you would not. As soon as you had made it clear that compulsory arbitration was going to play a part, the whole atmosphere in these negotiations seemed to change. People entered into much more constructive arrangements. Some of them completely avoided or did not want to go down an arbitration route and settle on payment terms, which I do not think they would have done prior to that decision, so I think it has had a wholly positive impact.

Andrew Goodacre: I would say that when we first started looking at the problem in 2020, it was 40% to 50% that had experienced challenges with trying to negotiate something with landlords. I said earlier that we are down to a hard-core 15%—maybe 20%, but it is probably nearer to 15%. There is entrenchment on both sides at that point. The message about sharing a burden that Jack referred to earlier is really crucial in that. People on both sides, where they are entrenched, realise that they stand the risk of losing something from that position. People are beginning to come to it now.

If I have a concern, it is about things I have been hearing from tenants who are saying that landlords are trying to leverage negotiations before getting to arbitration. I mentioned asking people to give up security, or even saying, “We’ll write off part of that debt, but we’re going to increase your overall rent up to this level.” They are using a bit of power, fear and the realisation that cash is king to the business in order to influence a decision that may not be in the best interests of the business in the longer term, but in the short term looks like a natural solution. Some of that may be right. I am not saying that it is not, but there is an indication of some of those behaviours starting to manifest.

Jack Shakespeare: To endorse that, I think it has changed the atmosphere. It has certainly turbo-charged the conversations. It goes back to a few things. The ability to disseminate the information is really important. You have picked up on the clarity before. How that comes out through trade bodies and goes out through lawyers and local government is really important. That will maintain the pace of conversations. It is really important that it does not drop, so that people access that information. The overriding sense of uncertainty looking ahead is a massive dynamic right now, but holistically it has really changed the atmosphere and advanced the conversations.

[Paul Scully]

Q To follow up on your point, Martin, about businesses that are not within the scope, it is a really difficult balance to get right without swamping the system such that it is not satisfactory for anybody. Obviously the code of practice remains there for all businesses. What are your reflections on how the code has worked, whether the changes that have been made recently improved it, and which other areas would be useful within it?

Martin McTague: The code of practice has worked, in that it has set an expected behaviour and the way in which the parties should relate to each other. I accept completely that if you tried to expand the scope dramatically it would damage the impact, but clearly it does not stop with the retailer; a lot of people are impacted by this.

[Paul Scully]

Q Jack and Andrew, do you have any other reflections on the code?

Andrew Goodacre: This code is so much stronger than the previous code in 2020. We are moving in the right direction. It links into your earlier question about changing behaviours, and the code has been instrumental in that. On what would enhance the code, I appreciate that the information is not entirely available yet, but it is about who will be arbitrating, the costs of that arbitration and the decisions around the viability, so that people get to know as early as possible what they need to do to submit, if they feel that they will end up in that situation. Preparing for arbitration will be quite scary to some people—the mere thought of putting all that information together. As soon as we can release what they need to have recorded and prepared, the earlier they can start doing it. You do not want to try to collate all the information with two months to go on the process.

Jack Shakespeare: I have nothing to add to that.

[Mick Whitley]

Q Are you concerned that the potential costs of arbitration might put business tenants, especially small and independent businesses, off engaging in the arbitration process, thereby leading to their closure?

Martin McTague: It might do, but the alternative is that they would have to take legal action, which is likely to be much more expensive and protracted. It is not an ideal solution, but it is certainly a step in the right direction.

Andrew Goodacre: Yes, it could do. If you were looking at costs in the hundreds instead of the thousands that would obviously be better. You have to put it in context. As I think one of your colleagues said, next year an awful lot of cost increases are coming through to business, whether it is the national minimum wage or energy costs, which have tripled for many businesses. Suddenly, whether it is £1,000 or £2,000, it looks like a lot of money. That may lead to a better negotiation and solution before you get to arbitration, but it plays to the landlord to play the waiting game at that point in terms of initiating the arbitration. That is the threat of it.

Jack Shakespeare: To go back to one of Andrew’s last points, as much foresight and clarity on that up front would be beneficial, so that people can make informed decisions on how they go forward.

Commercial Rent (Coronavirus) Bill (Third sitting)

Paul Scully Excerpts

Committee stage
Thursday 9th December 2021 Public Bill Committees

[The Chair]

Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted during sittings of the Committee except for the water provided. I encourage Members to wear masks when they are not speaking, in line with Government and House of Commons Commission guidance. Please also give each other and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Hansard colleagues would be grateful if Members emailed their speaking notes to [e-mail].

We now begin line-by-line consideration of the Bill. The selection and grouping for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or similar issues. Please note that decisions on amendments do not take place in the order that they are debated but in the order that they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause to which the amendment relates, and decisions on new clauses will be taken once we have completed consideration of the existing clauses of the Bill. Members wishing to press a grouped amendment or new clause to a Division should indicate when speaking about it that they wish to do so.

Clause 1

Overview

Question proposed, That the clause stand part of the Bill.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is a pleasure to serve under your chairmanship, Mrs Murray.

Many businesses are still on the long road to recovery following the pandemic, particularly in the sectors that have been hit hardest, such as hospitality and retail. The most recent data indicates that rent collections for this year’s third quarter are much higher than they were for last year’s third quarter, but they are still not at pre-pandemic levels. An estimated total of just under £7 billion of rent was deferred over the pandemic.

Although we have provided an unprecedented package of support to businesses, we have also been clear that we expect landlords and tenants to come together and negotiate. Agreements have been reached for many businesses, but for others negotiations have stalled, leaving rent arrears to build up, which could threaten many of the valued jobs that those businesses provide.

The statutory arbitration process that the Bill introduces should be used as a last resort, where landlords and tenants have been unable to reach their own agreements. For those tenancies, the Bill will ring-fence rent debt accrued during the pandemic by businesses required to close, and set out a process of binding arbitration that will resolve rent disputes and help the market return to business as usual. The Bill will temporarily restrict remedies available to landlords in relation to rent debt built up during the pandemic. To respect the primacy of the landlord-tenant relationship wherever possible, the arbitration process will not be available where legal agreements are reached between landlords and tenants over the payment of a protected rent debt.

I commend the clause to the Committee.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to serve under your chairship today, Mrs Murray.

I am grateful to the Minister for his opening remarks, in which he set out why the Bill is needed. Indeed, some of the estimates of the deferred rent debt that has been built up are around £7 billion, with some as high as £9 billion. That is why we called for action earlier this year, so that there was clarity about how some rent disputes would be resolved, and resolved fairly, because we know that the impact of the pandemic is ongoing.

I have concerns that may be outside the scope of the Bill, unless we decide to accept some amendments on Tuesday. In the light of the announcements yesterday and the guidance coming out today, there may need to be a review if there is a risk of further rent arrears if income drops for businesses in the period ahead. So I hope that there will be ways in which we can keep matters under review, in the light of recent developments.

Clause 1 indeed provides an overview of the Bill, and it is in part 1 of the first three short parts. Part 1 is about “Introductory Provisions”, including important definitions; part 2 provides the framework for statutory arbitration between landlords and tenants; and part 3 provides for the ongoing restrictions on “Certain remedies and insolvency arrangements” in relation to protected rent debt.

Importantly, clause 1 also confirms that nothing in the legislation affects the ability of parties to a business tenancy to reach a negotiated settlement outside the arbitration process. That is important because the arbitration process is a backstop; it is a last resort. It is preferable—in terms of time, cost and the relationship between the parties—that they can be supported to reach a negotiated settlement without the need to resort to arbitration.

Labour will continue to encourage landlords and tenants to negotiate settlements, and it is good to see that most of them have already done so; indeed, that was an important part of the feedback from witnesses this week. It is a sign that most commercial landlords and tenants have worked closely together to get through the crisis, and I pay tribute to them for doing that, because it is a recognition that we have all been in this together and that everybody needs to play their part in bringing flexibility where it is needed.

UK Hospitality estimated that around 60% of its members reached agreement with their landlords on any outstanding debt, but there is an estimate that around one in five have yet to reach a negotiated settlement. Perhaps some settlement discussions are still in progress.

We support clause 1 and we will vote for it to stand part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

“Rent” and “business tenancy”

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause provides clarity with regard to which payments owed by a business tenant to their landlord under their tenancy contract will be considered to be rent for the purpose of the Bill. Rent includes contractual payments owed by the tenant to the landlord for occupation and use of the property, as well as payments collectively described as service charges and interest on any unpaid amount. Including both service charges and interest on any unpaid amount within the definition of rent will allow the arbitrator to consider a broad range of arrears that may be owed by the tenant to the landlord, rather than only the payments for occupation and use. The arbitrator will then consider whether relief should be awarded in respect of some or all of the amount owed.

The definition of business tenancy in the Bill is broadly consistent with the definition of business tenancy under section 82 of the Coronavirus Act 2020, which served to temporarily prevent landlords from evicting tenants. However, the Bill focuses on business tenants and their immediate landlords.

I commend the clause to the Committee.

[Seema Malhotra]

I thank the Minister for his opening comments on the clause.

Clause 2 defines the key terms that are central to the operation of this legislation, notably rent and business tenancy. Rent is stated to include the cost of using the premises and service charges, as well as interest on unpaid amounts relating to either, with VAT included. We have no concerns about this definition; it seems sensible and we hope that it is widely accepted.

Business tenancy means a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies. That Act applies to any tenancy where property is or includes premises that are occupied for the purposes of business. The Minister will have heard the concerns of the British Retail Consortium, raised on Tuesday, about the definition of the business tenancy. It has concerns that any tenancy contracted out of the 1954 Act would fall outside the scope of these protections. Will the Minister confirm the assurances that he gave the British Retail Consortium on that point?

As Kate Nicholls of UK Hospitality said in her evidence, also on Tuesday:

“It is important that this piece of legislation sits within the existing canon of property law”––[Official Report, Commercial Rent (Coronavirus) Public Bill Committee, 7 December 2021; c. 5, Q3.]

and that definitions are consistent with that existing canon. Subject to meeting the BRC’s concern about business tenancies, the definitions in clause 2 would in our view meet that test. I look forward to the Minister’s response. We support the definitions and will support the clause.

--- Later in debate ---

[Paul Scully]

Yes, I can confirm that tenancies to which part 2 of the 1954 Act applies are covered by the Bill, including where parties have agreed to exclude certain provisions of part 2 of that Act. I should also say, in reply to the hon. Lady’s earlier comments about future powers and what would happen in another coronavirus situation. The Bill does indeed contain a power that allows the provisions to be applied again in the event of future closure.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

“Protected rent debt”

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause defines “protected rent debt”, a key concept of the Bill, so that landlords and tenants have certainty about what is in the scope of arbitration. The definition for protected rent includes rent that is owed to the landlord under the tenancy if the tenancy was adversely affected by coronavirus, and excludes rent that the tenant owed to the landlord either before the pandemic or after businesses were allowed to open for business. That is in line with the Government’s expectation that the market should now return to normal, with the contractual arrangements once again adhered to.

The clause also states that if all or part of the protected rent debt was satisfied by the landlord by drawing down from the tenancy deposit, the sum that was paid for the deposit should be considered protected rent debt and should still be considered unpaid.

[Seema Malhotra]

I thank the Minister for his opening comments on clause 3, which defines “protected rent debt”. Rent is protected if the tenant was adversely affected by coronavirus within the meaning of clause 4 and the rent is attributable to a period that is protected within the meaning of clause 5.

Subsection (3) states that rent consisting of interest due on an unpaid amount is

“attributable to the same period of occupation…as that unpaid amount.”

That means that if a tenant is paying interest on rent due, the interest is also considered to be from the same period of occupancy as the rent. Subsection (5) sets out that if rent due is only partly attributable to a period of occupation, only the rent due that is attributable to that period qualifies as protected rent. That means that if there is rent due that is attributable to occupation by the tenant both outside and within the protected rent period, only that which was within the protected period is regarded as protected rent. It is likely there will be some confusion around that. Perhaps the Minister intends to have clear examples and guidance so that those who use the legislation will be clear about how they need to do their calculations.

Clause 3 does clarify what is meant by protected rent debt. We support the definition and will vote for the clause.

--- Later in debate ---

[Paul Scully]

Indeed, guidance will be really important to ensure that arbitral services and bodies have all the information that they need to make a correct definition. As the hon. Lady says, including interest is important, otherwise the burden of meeting interest under punitive contractual rates would defeat the object of the Bill.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4

“Adversely affected by coronavirus”

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Clause 4 is essential. It establishes which businesses can access arbitration and the Bill’s temporary moratorium on other measures. We appreciate that the pandemic has been difficult across the economy, but we are seeking to target this measure at those businesses most directly affected so that we can resolve cases quickly, providing businesses with certainty while protecting jobs in our most vulnerable sectors, such as hospitality, retail and leisure. That is important not only for eligible businesses, but for the individuals who contribute to them.

Clause 4 provides that a business was adversely affected by coronavirus, and therefore its rent may be in scope, if it was required by regulations to close all or part of its business or premises for any of the time while closure requirements were in place: from 21 March 2020 until 18 July 2021 for England, or until 7 August 2021 for Wales. If a business was subject to a closure requirement for any period within those times, it meets the test, regardless of whether it was allowed to carry out other limited activities such as takeaways. Without that targeted approach, we could see rent issues from the pandemic unresolved for a significant amount of time, so I urge the Committee to support the clause.

[Seema Malhotra]

I thank the Minister for his remarks. As he described, clause 4 clarifies what is meant by businesses “adversely affected by coronavirus”. It states that a business can be categorised as adversely affected if part or all of it was obliged to close due to coronavirus restrictions during the relevant period. It also states that any specific limited activities that the business was able to take part in during its forced closure can be disregarded as immaterial for the purposes of the Bill. We think that is very important, otherwise we will have situations in which one side or the other says that a business is not eligible for the scheme for the purposes of arbitration, so we support having that clarity in the Bill.

The clause also defines the relevant period as 21 March 2020 to 18 July 2021 for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. We do not object to those dates—there are clear reasons why they have been chosen, given that Government policy changed around those times. My only concern is that the tail end of recovery has been slower in some sectors, such as aviation, travel and tourism, than in others. The dates on which some businesses were able to reopen and start to do much better did not apply in the same way to all businesses in all sectors.

Although we have not tabled any amendments to those dates and we support clause 4, it will be important for the Minister to keep this Bill under review, bearing in mind that there has not been an equal recovery for businesses. If concerns are raised with him about businesses that may or may not be eligible, but have been impacted by coronavirus closures or consequences, it is important that some amendments could be made in due course, should they be required.

[Paul Scully]

I think we all acknowledge the fact that this is not a perfect science: some businesses that were suffering through the lockdown will continue to have a slow recovery. This is a focused Bill dealing with a particular kind of ring-fenced debt, and we want to make sure that we encapsulate this issue, so that we do not make the Bill and the process of arbitration too big in a way that benefits nobody. I think the Bill is proportionate, and will have the right effect.

In terms of a long tail of recovery, we obviously need to look at the support from a holistic point of view, and at the additional measures that we have put in place to support businesses, including the sectors that the hon. Lady mentioned. Importantly, we will continue to flex. I have been on calls today, and over the past few days—especially with plan B being announced—with representative organisations, and people from hospitality in particular, which is hard pressed. We will continue to listen and respond.

Question put and agreed to.

Clause 4 accordingly ordered to stand part of the Bill.

Clause 5

“Protected period”

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Clause 5 sets out the protected period from which rent can be referred to arbitration. The Government are committed to supporting landlords and tenants to resolve rent that has built up. For the arbitration scheme to do so, the parties and the arbitrator must be clear on from which periods rent can be referred to arbitration. Closure requirements and other restrictions were lifted at different times for different types of businesses as part of the appropriate road map out of restrictions, and the reducing of alert levels. That is why the protected period runs from the start of closure requirements until the last day that a business was either required to close or subject to another specific restriction on how it could operate or use its premises.

The period is not affected by general restrictions that applied to all businesses and requirements to give or display information, such as requirements to display information about the wearing of face masks, but where particular types of businesses were subject to a restriction under coronavirus regulations, the period takes account of that restriction. It is intended to take a clear and appropriate approach to the rent debt that may be referred to the arbitrator. The arbitrator will not necessarily award relief in respect of all debt relating to the period, as the appropriate relief will depend on the circumstances, but I urge the Committee to support the clause.

[Seema Malhotra]

I thank the Minister for his remarks. Clause 5 defines what is meant by the protected period and specific coronavirus restrictions for the purposes of the Bill. He has outlined the dates for the protected period, and that a specific coronavirus restriction means any requirement other than a closure requirement that regulated any aspect of the way that a business was to be carried on. Requirements to provide information on premises, or requirements that applied more generally to businesses, are not included under the specific coronavirus restrictions.

Clearly, as we have discussed, many businesses continued to experience significant covid impacts beyond the end of the protected period. However, we recognise the need to strike the right balance between the interests of landlords and tenants, and therefore the need to limit the protected period to one that is clear about how arbitrators will look at and assess claims and that is clearly aligned with policy. I hope that the Minister will have heard the reflections of stakeholders, including Andrew Goodacre from the British Independent Retailers Association, that businesses that were not forced to close—essential businesses—may still have suffered significant economic consequences.

We want to ensure that there is fairness, and that all viable businesses that suffered an impact will be supported to continue through the ongoing recovery. Overall, we support the measures and definitions in clause 5, and will support it standing part.

[Paul Scully]

The hon. Lady is right: this is a focused Bill, looking at the first period of the pandemic. However, as I have said, we will continue to listen to various sectors and work with them to ensure that we can recover equally.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6

“The matter of relief from payment”

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause sets out the two questions that the arbitrator must decide before considering what, if any, relief should be given to the tenant. That is important because it ensures that arbitration capacity and relief are targeted at those who need it most, namely those whose rent has been impacted by closures and restrictions within the ring-fenced period. The first question is whether there is any protected rent debt. The second is whether the tenant should be given any relief in respect of the payment of that debt and, if so, what type of relief.

The clause also sets out clearly the types of relief that an arbitrator can award in respect of protected rent debt: writing off part of or all of the debt; giving more time to repay the debt; or reducing or writing off any interest on the debt. Setting those clear boundaries will help arbitrators to reach awards quickly and provide adversely impacted businesses with the certainty they need to recover from the pandemic.

[Seema Malhotra]

I thank the Minister for his opening remarks. Clause 6 clarifies references to the matter of relief from payment—that is, the subject to be dealt with by an arbitrator under the legislation. It relates to whether there is protected rent debt and, if so, whether the tenant should be given relief from the payment of that debt. The Minister has outlined what that means but, to summarise again, it is the writing off of the whole or part of the debt, giving time to pay the whole or part of the debt, and reducing any interest payable on the debt. It is right that arbitrators are given the flexibility to provide for a form of relief that is appropriate for the specific circumstances of a case. Indeed, one or more forms of the relief may be appropriate depending on the circumstances of the landlord and the tenant. We support these measures and clause 6 standing part of the Bill.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

Approval of arbitration bodies

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The arbitration scheme will be delivered by independent arbitration bodies. The clause gives the Secretary of State the power to approve arbitration bodies for that purpose. Arbitration bodies will have to demonstrate that they are suitable before being approved. Further information on what constitutes “suitable” and how to become an approved body will be published on gov.uk.

The Secretary of State can also withdraw approval status if the body is no longer suitable to deliver arbitration services. The Secretary of State must notify the body if that is the case, and the body will have an opportunity to make representations. Under the clause, a list of approved arbitration bodies must be maintained and published by the Secretary of State, enabling parties to a dispute to know to whom an application for an arbitration may be made. The clause is therefore crucial to enable a high-quality, independent and accessible service to be delivered to landlords and tenants.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

It is a pleasure to serve under your chairship, Mrs Murray. When the Government create a dispute resolution process, as the Bill does, it goes without saying that there needs to be arbitration bodies. We naturally support the clause—although we have a couple of amendments coming up—as it is inevitable and clear. However, I want to address a point in subsection (7), which states:

“The Secretary of State must maintain and publish a list of approved arbitration bodies.”

We hope that the list will be easily discoverable and regularly updated. On subsection (6), we hope that the Government will ensure that the process of removing arbitration bodies that are not up to scratch is done transparently and speedily. It is absolutely essential that both parties to arbitration—landlords and businesses—have confidence, that the process is fair, and that arbitrators are trusted and appropriately experienced. Although we seek Government reassurance on that, we will support clause 7.

[Paul Scully]

I reassure the hon. Lady that we want to ensure that everything is transparent and easy to find. People are hard pressed and have to contend with the survival of their businesses, so it is really important that we give them as much information as possible. Indeed, we want to ensure that, should we be required to remove any arbitration services from the list, we do so in an open and speedy way, not least because we want to get through the process as quickly as possible—there is no point in dragging it out—for the benefit of landlords and tenants.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8

Functions of approved arbitration bodies

[The Chair]

I call Ruth Cadbury to speak to amendment 1.

--- Later in debate ---

[Ruth Cadbury]

I was speaking to the wrong amendment, Mrs Murray. I apologise to Committee members and staff.

I beg to move amendment 1, in clause 8, page 6, line 25, at end insert—

“(2A) The Secretary of State must by regulation specify the meaning of ‘qualifications’ and ‘experience’ for the purpose of this section.”

This amendment would require the Secretary of State to specify by regulation to meaning of qualifications and experience in section 8.

Amendment 1 would require the Secretary of State to specify by regulation the meaning of “qualifications” and “experience”. A fair arbitration process is crucial for businesses, landlords and all involved to have faith in the new system. The Bill states that there is a list of approved arbitrators who are appointed

“by virtue of their qualifications or experience”.

Our straightforward amendment would require the Secretary of State to specify just what those qualifications and experience should be.

During the Committee’s first oral evidence session, we had witnesses who focused on the importance of financial qualifications for the arbitration, because most cases will focus on the financial situation for the parties. One witness had an alternative view, however, and suggested in their written evidence that arbitrators should be legally qualified due to the complex nature of some cases and the need for a fair, transparent process.

When the Bill was introduced, we said that it was crucial that businesses have faith in the whole of the arbitration process. Equally, we said that it was important that the process is transparent and fair. That is why our amendment would require the Secretary of State to outline just what the necessary qualifications and experience should be. That would reassure all those involved in the process that it is being overseen by trusted and qualified individuals and groups.

[Paul Scully]

I think that we all agree about the importance of having the right arbitrators in place to carry out this important work. The Bill already contains steps to ensure that arbitrators will have the necessary qualifications and experience. First, the Secretary of State may approve an arbitration body only if it is considered suitable to carry out its required functions. If the Secretary of State considers an arbitration body not to be properly carrying out its functions, including those relating to the assessment of qualifications and experience, the Secretary of State can withdraw approval.

Secondly, the arbitration bodies themselves are required to maintain a list of arbitrators that are suitable to work on cases that fall under the Bill by virtue of their qualifications or experience. It is right for the arbitration bodies, as the experts on this matter, to determine which arbitrators are suitable given their qualifications and experience. Arbitration bodies that have demonstrated an interest in becoming approved bodies are widely recognised and respected in the field of arbitration, and they are experienced in assessing arbitrators through their accreditation services. That will ensure that we do not unfairly exclude arbitrators by setting in legislation definitions that are too narrow.

However, we recognise that we should not take a one-size-fits-all approach to arbitration, so the Bill provides that arbitration bodies have the flexibility to appoint arbitrators to cases that match their specific qualifications and experience. Furthermore, if an arbitrator does not possess the qualifications required for a particular case, the arbitration body is required to remove them from that case.

The Bill already ensures that arbitration is carried out by suitably qualified and experienced arbitrators. I hope that hon. Members agree that the arbitration bodies are best placed to make this judgment, notwithstanding the clear evidence that we heard of the kind of experiences that we, landlords and tenants expect of arbitrators. I therefore request that the amendment be withdrawn.

[Ruth Cadbury]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Clause 8 sets out the statutory functions of arbitration bodies approved by the Secretary of State to carry out arbitration services. It is key to enabling the arbitration market to deliver the system that is required to efficiently resolve outstanding rent disputes. The arbitration bodies will be given powers to appoint arbitrators to a case, as well as to remove them if they are deemed unsuitable on certain grounds. The clause also provides that arbitration bodies will oversee cases and set fees for arbitration services, subject to any cap on fees that may be imposed by the Secretary of State under clause 19, as well as dealing with financial arrangements.

If grounds for removal exist, an arbitration body must remove the arbitrator from the case—for example if an arbitrator does not possess the qualifications required for the arbitration. That is integral to the delivery of the arbitration process. It also provides for reporting, to enable the Secretary of State to have clear sight of the progress of the arbitration process.

[Ruth Cadbury]

We have no further amendments to the clause, and we have no further comments to make at this point.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Clause 9

Period for making a reference to arbitration

--- Later in debate ---

[Ruth Cadbury]

Amendment 2 covers a much wider issue around trust and transparency: the way in which Parliament has full, open access to decision making. The amendment is similar to amendments that Labour colleagues have introduced before in other pieces of legislation that we have otherwise been supportive of on the whole, as we are of this Bill.

Amendment 2 would require regulations to be made according to the affirmative procedure. It would ensure that Parliament can fully scrutinise the extension of the existing six-month period in which businesses can go through the arbitration process. The Bill requires regulations to go through the negative procedure, which means that they would be discussed or stopped only if there was an objection. Our amendment would make the procedure affirmative, meaning that Parliament would have to approve them.

In recent days, we have seen that the Government’s approach to public health issues and, indeed, to the wider impacts of coronavirus can change rapidly, and it is crucial that MPs and parliamentarians are able to debate, scrutinise and assess such changes. Our amendment therefore calls for both Houses to approve any extension to the arbitration process, to ensure that it works for businesses and landlords across the country.

[Paul Scully]

I thank the hon. Lady for her summary of the amendments. The Bill aims to resolve protected rent debt quickly and support commercial tenants and landlords to return to normal operations as soon as possible. We encourage landlords and tenants to resolve unpaid debt between themselves. The arbitration process is designed to allow for negotiation and for the parties to make considered proposals to lead to appropriate outcomes.

The timeframe for making references to arbitration will encourage a speedy resolution of the disputes in scope, and is meant to deal with a particular set of circumstances at a critical time. We believe that six months is enough time to allow eligible tenants and landlords to apply for the arbitration process. However, if there is evidence that the six-month period is not enough, the Secretary of State can, using the power in clause 9, extend it to allow more time for the eligible parties to apply. Any evidence that the power is needed is unlikely to become available until well after the Bill comes into force; it may not become apparent that such an extension is necessary until close to the expiry of the six-month period. The length of an extension would depend on the circumstances, but would be based on feedback from stakeholders. It would be only for as long as is absolutely necessary.

I appreciate the interest in transparency shown by the hon. Member for Brentford and Isleworth, and I reassure her that the decision to extend would be based solely on evidence from tenants, landlords and arbitrators. Officials will continue to monitor the process if issues with the time period arise.

Regulations to extend the application period may need to be made relatively quickly in order to react, so it is important that the Bill remains flexible in case more time is needed. It remains important for the Government to work with Parliament. None the less, we want to make sure that the process can be resolved as quickly as possible, without any undue delay or concern that landlords and tenants will not have their case heard as quickly as possible. We therefore consider the negative procedure to be appropriate in the circumstances. I welcome the hon. Lady’s contribution, but I hope in this instance that she will withdraw the amendments.

[Ruth Cadbury]

If the two amendments are being considered together, I would also like to speak specifically to the other one.

[Ruth Cadbury]

Thank you, Mrs Murray, that is very helpful. Amendment 3 would require the Secretary of State to prepare, publish and lay before Parliament a report giving reasons for any extension to the period for making a reference to arbitration. Like amendment 2, amendment 3 is crucial in improving and expanding the scope of parliamentary scrutiny. It calls for the Government to publish a report setting out the reasons given for any extension of the existing six-month arbitration process.

As we said on Second Reading, it is crucial that the Bill has the support of businesses and that the arbitration process is transparent and open, which should include any extension of the period in which rent arrears can be brought into arbitration. Our amendment therefore calls for the Secretary of State to publish and lay before Parliament the reasons for extending the arbitration process.

[Paul Scully]

I hope that, in my opening remarks, I made clear our reasons for asking the hon. Lady to withdraw the amendment.

[Ruth Cadbury]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The purpose of the clause is to specify the time limit for which arbitration under the Bill will be available. It will encourage landlords and tenants to engage and attempt to resolve in-scope disputes in a timely manner. There is a power for the Secretary of State to extend the time limit if it is required. The arbitration process should be seen as a last resort and our strong preference is for landlords and tenants to negotiate using the updated code of practice.

Before either party can make a reference to arbitration, on notification by the applicant that they intend to make a reference, the parties are expected to offer solutions with supporting evidence to try and resolve the matter, meaning arbitration should be a last resort. Under the Bill, parties will have six months to make a reference to arbitration to give them time to go through those steps. The Secretary of State has the power to request reports from approved arbitration bodies to enable him to monitor their progress and also has a delegated power in the clause to extend the six-month period, should monitoring suggest that it is necessary to do so.

Question put and agreed to.

Clause 9 accordingly ordered to stand part of the Bill.

Clause 10

Requirements for making a reference to arbitration

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

A party that wants to take their dispute to arbitration must first go through a process of notifying the other party and allowing the other party to respond. The clause sets out the timings and the steps to take. The intent is to give both parties enough time through a period of up to at least 28 days from the date of initial notification to try and reach an agreement pre-arbitration.

Arbitration provided by the Bill cannot be used where tenants are subject to, or are debtors under, certain legal compromises or arrangements for debt recovery. That is because the Bill aims to focus specifically on unagreed rent arrears and to encourage negotiations where possible.

[Ruth Cadbury]

I thank the Minister. Again, we do not propose to amend or oppose the clause. I appreciate that the Government have put these measures in place for a reason and we welcome them. I would like to know whether the Government have made any assessment of how many businesses would be unable to go to arbitration on the basis of these limits.

[Paul Scully]

I am not aware that we have made a specific assessment. We have made assessments on the businesses that come within scope and would otherwise go to arbitration because they have not been able to have a satisfactory discussion beforehand. These positions allow parties time to reflect on whether they can reach that settlement in a fair and open process.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11

Proposals for resolving the matter of relief from payment

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause requires the party making a reference to arbitration to include with that reference a formal proposal and supporting evidence. The other party may respond with their own proposal, accompanied by supporting evidence, within 14 days of receiving the applicant’s. The process therefore gives each party the opportunity to review the other’s proposals. The parties then have 28 days from their initial formal proposal to submit a revised proposal accompanied by further supporting evidence—or longer if both parties or the arbitrator agree to allow more time, giving each party time to reflect and respond. That is important, because it facilitates the possibility of a settlement occurring early on in the arbitration process once a reference to arbitration is made. It supports our aim of giving businesses certainty as soon as possible. I commend the clause to the Committee.

[Ruth Cadbury]

I thank the Minister. Again, we do not intend to amend or oppose the clause at this point. We support the proposals for resolving the matter of relief, because, as the Minister has said, it allows tenants and landlords to reach an agreement. We know from stakeholder feedback that this process is welcomed by businesses. It will provide relief, especially because of the block on any court action that it provides. We also welcome it because it allows both parties to make proposals to tackle debt relief. Equally, we want to make sure that there is a level playing field in the arbitration process. We do not want larger companies to be able to muscle through the arbitration process because they have greater levels of resources—both financial and in levels of expertise and so on.

Although we welcome the fact that the process can be extended with agreement, there is an equal chance that, if the process extends and extends even further, it could act as an extra burden on smaller businesses. That is why we hope the Government will look into the accessibility and ease with which small businesses, in particular, can engage in the arbitration process.

[Paul Scully]

We will continue to work with the arbitration services that have expertise in this area, especially as the measure is based on systems specifically targeted at smaller businesses and smaller disputes.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Written statements

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Statements of truth confirm the veracity of written statements submitted to the arbitrator, and they will be required to verify any written statements provided to the arbitrator—whether by one of the parties or another person—that relate to a matter relevant to the arbitration. An unverified written statement can be disregarded by the arbitrator. It is standard practice in arbitration processes to require a written statement to be verified by a statement of truth. That ensures that parties only make written statements that they believe to be true, ensuring that arbitral awards have a sound basis. I urge the Committee to support the clause.

[Ruth Cadbury]

This is a welcome clause and one that we support. It is vital that statements given to the arbitrator are truthful. That will be crucial when viability is being assessed. Although we have expressed the importance of viable businesses being supported, we appreciate that this is a two-way street, and that businesses need to provide truthful and full information to the arbitrators, as, of course, do landlords. We support the clause.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Ordered, That the Order of the Committee of Tuesday 7 December be amended, in paragraph 1(b), by leaving out “and 2 pm”.—(Craig Whittaker.)

Ordered, That further consideration be now adjourned. —(Craig Whittaker.)

Commercial Rent (Coronavirus) Bill (Fourth sitting)

Paul Scully Excerpts

Committee stage
Tuesday 14th December 2021 Public Bill Committees

[The Chair]

Before we begin, I have a few reminders for the Committee. Please switch electronic devices to silent or off. No food or drink is permitted during sittings of the Committee, except for the water provided. Members are encouraged to wear masks when they are not speaking, in line with Government and Commission advice. Please give one another and members of staff space when seated and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That may be done at home or in the testing centre on the estate. Hansard colleagues would be grateful if Members emailed any speaking notes to [e-mail].

Clause 13

Arbitration awards available

Question proposed, That the clause stand part of the Bill.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

As usual, Mr Hosie, it is a pleasure to serve under your chairmanship.

The clause sets out what awards an arbitrator may make following a reference to arbitration. It provides clarity to arbitrators and parties considering arbitration about the criteria for successful referral.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is pleasure to serve under your chairship, Mr Hosie.

Subsection (3) requires an arbitrator to dismiss a reference if they find that the tenant’s business “is not viable” and

“would not be viable even if the tenant were to be given relief from payment”.

Will the Minister say more about what constitute viable and unviable businesses? Groups representing the hospitality sector, for example, have made it clear that the seasonal nature of their businesses should be reflected in the viability test. As well as being provided with guidance, arbitrators should also have the right level of flexibility.

[Paul Scully]

I am happy to give the hon. Lady that assurance. The reason why we do not have a specific definition of what constitutes viability or affordability is that businesses models vary greatly, including with seasonality, and within and between sectors. Under clause 16, which we will consider later, we include factors that the arbitrator should consider when assessing the viability of the tenant’s business.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Arbitrator’s award on the matter of relief from payment

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The Bill contains principles that are key to ensuring that rent debt is resolved in a proportionate way for tenants and landlords. The clause sets out how arbitrators must consider those principles when making an award under the Bill.

[Seema Malhotra]

I have a couple of questions about the clause. First, will the Minister clarify why the Government have chosen to make the repayment time under subsection (7) 24 months? Has he concluded that that will be sufficient time for businesses to repay what they owe, even if further covid restrictions are put in place? The current circumstances are a cause for concern to businesses that have seen revenues drop while costs continue. Secondly, reflecting the concerns of stakeholders including the Pubs Advisory Service, will the Minister clarify whether subsection (2) implies that the arbitrator will consider only the final proposal when making the award, or will they consider all proposals made by both parties in the round?

[Paul Scully]

In awards that give tenants time to repay the debt, tenants will have no longer than 24 months to do so. That recognises that additional time to repay may help businesses to recover and start to trade as normal, while ensuring that the issue of rent debts does not drag on unnecessarily. As for how it works, the scheme uses a key aspect of pension arbitration, by which each may propose a financial solution to pay protected rent, and the arbitrator will select the proposal that is most consistent with the principles set out in the Bill, assuming that one at least follows those principles. Otherwise, the arbitrator must make whatever award the arbitrator considers appropriate when applying the principles.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Arbitrator’s principles

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss new clause 1—Review of awards—

“(1) The Secretary of State must no later than three months following the day on which this Act is passed conduct a review to assess whether sections 15 and 16 of this Act have been interpreted consistently by approved arbitration bodies.

(2) In conducting a review under subsection (1), the Secretary of State shall have regard to published awards.

(3) If a review under subsection (1) identifies material inconsistencies in the interpretation of sections 15 and 16 of this Act, the Secretary of State must issue further guidance or amend existing current guidance to arbitrators about the exercise of their functions under the Act.”

This new clause would require the Secretary of State to conduct a review of awards to assess whether sections 15 and 16 of the Act have been interpreted consistently and publish or amend guidance as necessary.

--- Later in debate ---

[Seema Malhotra]

New clause 1 is a probing amendment. It would require the Secretary of State to conduct a review of awards to assess whether sections 15 and 16 of the Act have been interpreted consistently and to publish or amend guidance as necessary. We have heard issues raised about the interpretation of viability of businesses and making sure there is enough experience with arbitrators to ensure a consistent approach to resolving rent debt. In tabling the new clause we are seeking a review. It is helpful to know if the Secretary of State is seeking feedback on how the system is working and whether there are inconsistencies identified, which may require further guidance to be given to arbitrators about the exercise of their functions under the Bill. That is in the interest of strengthening the regime and trust in it among tenants and landlords alike. I would be grateful for the Minister’s comments on what feedback process he is expecting to see otherwise, so that we can make sure there is learning through the system and that it works effectively.

[Paul Scully]

We are committed to the principles in the Bill. That is why we have included them in the legislation. We will require arbitrators to follow them in their work. Arbitration bodies will only appoint arbitrators that are considered suitable to carry out arbitration as set out in the Bill. These bodies also have the power to oversee any arbitration when an arbitrator is appointed.

The arbitration system is designed to be a quick, effective and impartial solution to rent debts that cannot otherwise be resolved. Requiring a review of the arbitration process within three months of the Bill being in force could slow that process down. It may add additional steps and requirements for arbitrators who have already proven their suitability and impartiality for the role. It may postpone the appointment of arbitrators, further delaying cases if arbitration bodies must await the findings of the review before acting.

If new or revised guidance were required following a review, it would take additional time to produce and would not be in place for many cases referred to arbitration. We currently expect that all applications to arbitration would be made within six months and that cases should be resolved as soon as practicable afterward. Under the Bill’s provisions, the Secretary of State can also request a report from approved arbitration bodies covering the exercise of their functions under the Bill, including details on awards made and the application of the principles set out in the Bill on arbitrations they oversee.

There is a requirement for arbitrators to publish details of awards made, including the reasons behind it. That will show how arbitrators have applied the principles in the Bill to come to their decision. If there is any need to revise the guidance, for example to clarify or add new information for arbitrators, the Secretary of State is already able to do so. In summary, the Bill already contains several ways of monitoring the application of its principles. If the need arises, guidance can be updated to ensure that arbitrators have the information required to carry out their work. I do not believe that a required review would benefit the aims of the Bill. Therefore, I hope the hon. Member will withdraw her new clause.

[Seema Malhotra]

On the basis that there are other mechanisms that the Minister will—I use the word will—be using to ensure that there is feedback from the system, we will not push the new clause to a vote today. However, I do think it will be important to keep this under review. I expect that on Report in the new year, when circumstances might be different, we may want to look again at some of these amendments.

Question put and agreed to.

Clause 15 accordingly ordered to stand part of the Bill.

Clause 16

Arbitrator: assessment of “viability” and “solvency”

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause is important because it relates to the key principles of viability and solvency that underpin the arbitration process. Arbitrators must ensure that an award maintains or restores a business’s viability as long as it is considered that it would be preserving a landlord’s solvency.

[Seema Malhotra]

Subsection (2) lists factors to which an arbitrator may have to have regard when assessing landlord solvency, so far as the information is known. Could the Minister confirm whether further details about this evidence will be released by the Government? Again, I am just asking about consistency in the arbitration process.

Subsection 3 states that the arbitrator must disregard the possibility of either party borrowing money or restructuring their business. We support this measure and think it will contribute to ensuring that the arbitration process is fair. However, if would be helpful to hear some clarification on the regulations outlined in clause 16, and what further guidance will be forthcoming.

[Paul Scully]

I have talked about the fact that in this clause there are a number of factors when assessing the viability of a tenant’s business. I would also point the hon. Lady to the code of practice, which is not only for the use of the arbitrator, but for people who fall outside the scope of the Bill. It contains a non-exhaustive list of evidence that can be considered when determining viability and affordability, including existing and anticipated credit debt balance; business performance since March 2020; the tenant’s assets, some of which may be liquid, others of which may be plants or machinery; the position of the tenant with other tenancies; insolvency of a major customer; unexpected retentions or knowledge of a lack of working capital; or loss of key personnel or staff redundancies. Further factors can be found in annex B of the code of practice.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17

Timing of arbitrator’s award

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause establishes the timeframe for making awards, requiring arbitrators to make an award as soon practicable or, in the case of a normal hearing, within 14 days.

[Seema Malhotra]

We recognise that both businesses and landlords will benefit from prompt solutions to rent debt. Can the Minister explain why a different time frame is appropriate for the making of the award depending on whether an oral hearing is held or not? It would also be helpful if he could explain what

“as soon as reasonably practicable”

means in this context. What would be a reasonable period of time for the award to be made?

Stakeholders have suggested to us that under the pubs code, awards and adjudications can take up to a year to be published. Presumably the Minister can confirm that this would certainly not be reasonable. He has talked in general terms about time limits before, but given that there is no stipulated time limit under clause 17(1), what recourse would the parties have where no award is forthcoming in a timely manner?

[Paul Scully]

Although the applicant making a reference to arbitration must submit a formal proposal, there is the option for the respondent to also submit a formal proposal. Both parties also have the option to submit revised proposals. In addition, some cases may be more complex than others, and the arbitrator may need to ask for further information. The Bill therefore provides that the arbitrator must make the award as soon as reasonably practicable, which will allow for any additional work required because of the complexity of the case. I assure the hon. Lady that we are indeed hoping and expecting such cases to be resolved within a matter of months rather than, as she described in relation to the pubs code, anywhere approaching a year.

When there is a long period, there is a clear date on which the hearing concludes and evidence has been given, so that is why the Bill provides that the arbitrator has 14 days from the day on which the hearing concludes to issue such an award. Some cases that go to oral hearings may have added complexities, so the arbitrator may need more than 14 days to consider arguments, facts and evidence that have arisen. There is a discretion there for the arbitrator to extend the time limit if they consider that it would be reasonable, in all circumstances.

[Mick Whitley (Birkenhead) (Lab)]

Will there will be any retrospective payments? In the bundle of evidence some companies submitted, they say that they have been pressed for their outstanding debt. If this Bill goes through, does that mean that any retrospective payments will be made by the arbitrator?

[Paul Scully]

I will write to the hon. Gentleman if I am getting this wrong, but I think the arbitrator can take the whole situation into account, including what has been paid and the evidence that has been given, when making the final judgment. I will write to the hon. Gentleman if that is not as full an answer as he wants.

Question put and agreed to.

Clause 17 accordingly ordered to stand part of the Bill.

Clause 18

Publication of award

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The arbitrators will be required to publish awards and the reasons for making them in the interest of transparency, but they will also be required to exclude confidential information for anything published, unless notified by the person to whom the information relates that they consent to its publication. Landlords and tenants can ask for confidential information to be redacted.

[Seema Malhotra]

We support the clause and the exclusion of confidential or personal information that may cause harm or concern. Labour believes that the arbitration process established under the Bill should be subject to appropriate transparency, with appropriate safeguards for commercially sensitive or other confidential information. The publication of awards should also support a consistent approach being taken across cases heard under the regime.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Arbitration fees and expenses

--- Later in debate ---

[Seema Malhotra]

I am pleased to move amendment 4, which relates to limits on arbitration fees, and speak to amendment 5, which relates to the accessibility and affordability of the process. We recognise that parties have to meet their legal and other costs, but we believe that arbitration fees and expenses should be proportionate to the arrears that are the subject of the dispute, and that they should not create a significant cost for the parties. I am sure the Minister recognises the harmful effect that a high arbitration cost would have on businesses that are already struggling, and it is only those in very difficult circumstances that are going into the process in the first place.

Clause 19 gives the Secretary of State the discretion to specify ceilings for arbitration fees in secondary legislation. We believe the Secretary of State should make such regulations to provide a cap, which would be the effect of amendment 4. We have also tabled amendment 5, which

“would require the Secretary of State to consider the accessibility and affordability of the arbitration process when specifying limits on arbitration fees.”

That is to ensure that, when setting new limits, the Secretary of State explicitly takes into account how the limits will affect the ability of business tenants and landlords to enter the arbitration process. I hope the Minister recognises the importance of ensuring that arbitration is not too costly for either landlords or tenants, particularly as businesses are again seeing falls in revenues at this stage. There is a cross-party desire to tackle rent debt, but we want the arbitration process to work. For that, businesses must be able to afford to enter the process.

I would be grateful if the Minister could respond to a concern raised by a stakeholder about the fees and costs that the arbitration bodies may apply. I understand that there is a £750 fee associated with a complaint under the rules of certain arbitration bodies. Would such a cost be included within the cap? I thank the Minister in advance for his response.

[Paul Scully]

As the clause stands, the Secretary of State will have the delegated power to make regulations specifying limits on the fees and expenses of arbitrators, but if the power is exercised, approved arbitration bodies will still have the discretion to set fee levels up to the cap limit. We have adopted a market-based approach that enables arbitration bodies to set fee levels for themselves, because they are best placed to decide, given their experience of costing arbitration schemes to make them affordable for parties and attractive enough for arbitrators to take on cases. The Secretary of State’s powers are intended to be used only when circumstances determine that it is appropriate.

We have designed the arbitration scheme to be affordable, and we are working with arbitrators to agree the cost schedules, which may answer the hon. Member’s question. Setting fee levels at this stage would be counterproductive, because we do not know what the market rate is while discussions are ongoing. A market-based approach is the optimum way to ensure that, on one hand, there is enough capacity in the system to deal with the case load and that, on the other hand, fees are affordable. Hon. Members have also asked that an express requirement be inserted that would require the Secretary of State to have regard to the accessibility and affordability of the arbitration process when specifying those limits. As I said, affordability is an important consideration in our discussions. It will be an important factor that will determine accessibility. We will take it into account when deciding if and how to exercise this power.

--- Later in debate ---

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Clause 19 concerns the fees and expenses of the arbitrators of approved arbitration bodies. We want to make sure that we have capacity and that it is affordable. If the cost does indeed prove to be a barrier, we can cap the fees to ensure that it remains affordable.

[Seema Malhotra]

Notwithstanding the concerns we have just raised, which we will continue to pursue, we support clause 19.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20

Oral hearings

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Being mindful of European convention on human rights considerations and the right to a fair trial, it is important that landlords and tenants have the option of a hearing. Any hearing would be in public unless the parties agreed otherwise. An oral hearing would add time and costs to the arbitration process, and the parties would be responsible for meeting those costs. This clause is important, as it gives the parties the right to an oral hearing and establishes the process for doing so.

[Seema Malhotra]

Labour generally supports these measures, but it would be helpful to understand whether the Minister expects oral hearings to be the exception rather than the rule. As the Chartered Institute of Arbitrators made clear in evidence about the business arbitration scheme, there was an assumption against oral hearings, with a document-only approach, which keeps costs and time low and, as it would say, allows for a more efficient process. Will guidance set out when oral hearings might be necessary or appropriate? We would like to understand more about the cost of oral hearings. Can the Minister say what he might expect the cost of oral hearings to be? Would he explain what action the Government will take to ensure that all hearings are affordable?

[Paul Scully]

I can reassure the hon. Lady that we would expect oral hearings to be very much the exception, because we want to make sure that we get through the process for landlords and tenants as quickly as possible. Under clause 21, the Secretary of State will provide arbitrators with guidance on the process of the scheme, including in relation to their function and exercise under the Arbitration Act 1996, as modified by the Bill.

There are a number of areas, such as what evidence the parties should provide when attending any oral hearings, where there is a risk of being too prescriptive, as what is relevant may differ between cases. Guidance would therefore be more helpful than strict rules. However, the ability to go for an oral hearing will very much depend on the arbitrator’s skills and experience, and will take into consideration the landlord and the tenant—as I said, they do have a right to a fair trial. The costs would depend on the complexities of the case.

Question put and agreed to.  

Clause 20 accordingly ordered to stand part of the Bill.  

Clause 21 

Guidance

[Seema Malhotra]

I beg to move amendment 6, in clause 21, page 13, line 3, leave out “may” and insert “must”.

This amendment would require the Secretary of State to publish guidance on the exercise of arbitrators’ functions and the making of references to arbitration.

[Seema Malhotra]

I will speak briefly to these amendments, which relate to viability. As we have outlined several times, we are asking how arbitrators would assess viability, and what skills and experience they would have to do that. We have tabled these probing amendments to seek guidance with information on the interpretation of viability.

There is benefit in having some flexibility, while still commanding the confidence of both sides, so that judgements can be made with the information available, but there is also a question of trust. We need confidence that the definition around viability will be interpreted consistently across arbitrators and arbitration bodies. Amendment 7 would reflect the concerns of stakeholders that guidance must address the meaning of viability and the timeframe over which it would be assessed.

[Paul Scully]

As the clause stands, the Secretary of State already has a delegated power to issue guidance. Hon. Members have asked that amendments be made to place a duty on the Secretary of State to issue that guidance. As I have explained, it is not necessary to require the Secretary of State to issue guidance, and it is neither necessary nor appropriate to be more prescriptive in the clause is.

Clause 16 already sets out a list of evidence that the arbitrator must have regard to when assessing viability. We have also set out a detailed, non-exhaustive list of the types of evidence that tenants, landlords and arbitrators should consider when assessing the viability of a tenant’s business, and the impact of any relief on the protected rent debt on the landlord’s solvency in annex B of the revised code of practice.

We are in ongoing discussions with arbitration bodies and landlord and tenant representatives to gauge what further guidance they need. We want to be informed by those discussions in deciding whether further guidance is needed and, if so, what precisely it should contain. If further guidance on viability is needed, we are prepared to produce it, but that is clearly covered by the clause as it stands.

It is essential that arbitrators maintain flexibility in assessing the viability of a tenant’s business, including the types of evidence required to make those assessments, so that they can be made in the context of each individual business’s circumstances. If guidance is too prescriptive, there is a risk of depriving arbitrators of that necessary flexibility, potentially resulting in unfair arbitration outcomes.

[Seema Malhotra]

I thank the Minister for his remarks. That was a very helpful set of comments, in light of what he has also outlined in relation to the ongoing discussions, which we are pleased to hear of—indeed, we have had discussions as well—as that is important.

Looking particularly at the pubs and hospitality sector, and other businesses with great variation in income, their repayments may need to happen over a more reasonable period of time. It is helpful to know that the Minister is considering where there may be differences between sectors, and recognises a system that takes into account the circumstances of individual businesses, because they can differ in how they are affected by slowdowns and so on.

I thank the Minister for his comments. It is certainly an area that we will keep under review. We will not press our amendment to a vote today. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause provides the power for the Secretary of State to issue statutory guidance to arbitrators or to tenants and landlords.

[Seema Malhotra]

We support the clause standing part of the Bill.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Modification of Part 1 of the Arbitration Act 1996

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to consider that schedule 1 be the First schedule to the Bill.

[Paul Scully]

The clause introduces schedule 1 to the Bill. Rather than include a detailed procedure for the arbitration process in the Bill, part 1 of the Arbitration Act 1996 will apply by virtue of section 94(1) of that Act. The long-standing arbitration procedures that are well known to arbitration bodies and arbitrators will apply to arbitrations under the Bill.

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss the following:

Amendment 8 in schedule 2, page 19, line 3, at end insert—

“whether against the tenant or a person who has guaranteed the obligations of the tenant”.

This amendment would clarify that the definition of “debt claims” includes claims against guarantors.

That schedule 2 be the Second schedule to the Bill.

[Paul Scully]

The clause and schedule 2 cover a temporary moratorium on enforcement measures.

The difficulties of paying commercial rent during the pandemic are best addressed through negotiation. The Bill provides a system to resolve protected rent debt when negotiation has not worked. It has been designed to consider both parties’ circumstances in the exceptional context of the pandemic. If the landlords could pursue other enforcement methods in respect of the respected rent, parties would lose the opportunity to resolve the debt by mutual arbitration applied by the Bill’s arbitration system. That is why the clause introduces a temporary moratorium on enforcement measures detailed in schedule 2.

During the moratorium period, landlords may not make a debt claim, exercise the right to forfeiture or use the commercial rent arrears recovery—CRAR—power to seize goods in respect of unpaid protected rent debt. They may not recover protected rent debt from the tenancy deposit while the temporary moratorium is in place. If they have done so beforehand, the tenant cannot be required to top up the deposit in that period. If the tenant makes a rent payment without specifying the period it covers, the payment must be treated as relating to unprotected rents before protected rents.

Schedule 2 also enables the arbitrator to consider protected rents under a debt claim issued between the Bill’s introduction and its coming into force, or a judgment on such a claim. It also treats rent payments made after the end of the protected period, when closure or other relevant restrictions are lifted, as for unprotected rents before protected rents.

I emphasise that the Bill’s moratorium and other remedies are temporary. We want the market to return to normal swiftly. Under the clause, the temporary moratorium applies only until arbitration is concluded or, if neither party applies for arbitration, until the application period closes. The temporary moratorium also only prevents access to remedies in relation to protected rent debt. If the tenant in scope of the Bill has failed to pay rent attributable to a period before 21 March 2020 or after the protected period ended, the landlord can take action in respect of that debt. Clause 23 and schedule 2, which the clause introduces, are important to give viable businesses an opportunity to resolve protected rent debt by mutual agreement through the Bill’s scheme.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

I will speak to clause 23 and schedule 2, as well as amendment 8, which I tabled with my hon. Friend the Member for Feltham and Heston.

The clause prevents rent debts from being collected during the moratorium period, which begins on the day the Act is passed. As we have said previously, we welcome efforts to put a moratorium on the enforcement of protected rent debts, and the clause outlines a number of protections to stop landlords collecting rent arrears debts, including by preventing the making of a debt claim using commercial rent arrears recovery powers or using a tenant’s deposit. The measures have been broadly welcomed by businesses and we support them.

The provisions on the moratorium period cover the period

“beginning with the day on which this Act is passed”.

Last week, Kate Nicholls of UK Hospitality told the Committee that as soon as the Bill is enacted, communications should go out to ensure that commercial tenants are aware of the arbitration process. That point holds for small businesses and independent businesses. I very much hope that the Government will take steps to ensure that the Bill and the protections in it come into force as soon as possible and, equally, that tenants as well as landlords are aware of the protections.

Schedule 2 sets out in more detail the process by which landlords are prevented from making a debt claim and ensures that landlords are unable to take civil proceedings during the moratorium period. We support those provisions, although we know from the feedback we heard during the witness sessions last week the importance of ensuring that tenants are aware of the moratorium period and of the ability to enter into arbitration. Businesses absolutely need to be made aware of the measures.

The schedule outlines in further detail the various definitions used in the Bill, reaffirms that landlords are not able to make a debt claim against protected debts during the protected period, and outlines how parties can apply for debt claims to be stayed while arbitration goes on.

I want to outline the important issues that we raised about the arbitration process. The process should be fair and transparent, and it needs to have the widespread confidence and support of tenants and landlords. As the witnesses in last week’s evidence sessions said, it is crucial that smaller tenants and landlords should not be made to suffer as the result of an expensive or long-running arbitration process in which they are at risk of being muscled out by the greater power of larger organisations. We welcome the arbitration process and the relief that it will bring, but the process itself needs to be fair, and it needs to ensure a balanced playing field.

Schedule 2 also outlines the fact that a landlord may not use the commercial rent arrears recovery power for protected debt, which we welcome. It also seeks to ensure that a landlord is prevented from enforcing a right to forfeit the tenancy in relation to the non-payment of rent. Subsection 9 prevents a landlord from using a tenant’s deposit. We welcome that provision as part of the wider package of protecting tenants and ensuring that landlords cannot seek to get around the spirit of the arbitration process and the protections around arrears.

Amendment 8 seeks to clarify that the definition of debt claims includes claims against guarantors. It aims to provide extra clarity about whether the protections given against county court action are also provided to the guarantors of tenancies. We have received written testimony from experts in the arbitration field and from the head lessee of the Subway chain, who express concern that guarantors and former tenants were not included in the implications of the legislation. I am sure that the Government want to see, just as we do, that the protection against rent arrears action is spread across all the businesses impacted by covid, as well as those that have given the additional support that new and small businesses so often need, such as their guarantors. Of course, many small businesses are franchisees of chains such as Subway, and its head lessee’s evidence must count for a lot of organisations where there is a head lessee and a franchise system.

We do not want to see a back door created whereby tenants are protected from enforcement but the guarantors are still liable. We also heard evidence from the guarantor of a nightclub in Surrey. We have two issues here: the guarantors and the head lessee. It is crucial that the Government ensure that the guarantors of tenants are also protected against debt claims during the prescribed six-month period. We do not want to see the common-sense measures circumvented if landlords are able to go after guarantors with no limit. As I say, the amendment is specifically about guarantors, but we also have concerns on behalf of head lessees.

[Paul Scully]

I thank the hon. Member for her comments. Indeed, I agree with her. She said that she wants the Bill to be passed as soon as possible, so I am speaking as quickly as I can to make sure that we can get that done.

On the communications, we have already given plenty of notice. The original announcement was in June. The policy statement and the code of practice were published. We have hosted webinars with key stakeholders, and we will continue to engage with them. The hon. Member is absolutely right. We want to make sure that this measure is known by all so that they can take advantage of it. If they are unable to settle their rent debts between themselves, we can bring this to a head quickly through arbitration and get back to a normal free market as soon as possible.

On the amendment, I can reassure the hon. Member that we will take full note of written evidence that comes in, but paragraph 2 of schedule 2 already prevents claims against guarantors. It prevents the landlord from making any debt claim in respect of protected rent within the moratorium period specified by the Bill. The provision in question is not limited to claims against tenants, so it does not need to state expressly that it covers claims against guarantors.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 24

Temporary restriction on initiating certain insolvency arrangements

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

Both parties are expected to engage with the arbitration process and must comply with any award made. They may choose to settle the matter by negotiation ahead of arbitration, but other processes that enable the arbitration system to be avoided should not be available. That is why clause 24 prevents a party from proposing or applying for a company or individual voluntary arrangements or certain other restructuring arrangements with their creditors.

[Ruth Cadbury]

Just as we welcome the actions in clause 23, we welcome clause 24 placing restrictions on the ability of either a landlord or a tenant to enter into specific insolvency arrangements when the matter relates to protected rent debt. That is a welcome move, as we do not want to see viable companies going into insolvency because of rent arrears.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.

Clause 25

Temporary restriction on initiating arbitration proceedings

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The clause prevents either party from invoking alternative measures that have not been designed specifically for debts related to the pandemic.

[Ruth Cadbury]

We heard in testimony last week that the vast majority of landlords and tenants have been able to reach agreements on rent arrears, and it has generally been a productive and straightforward process. The clause ensures that the tenant or landlord cannot unilaterally start arbitration proceedings and must go through the referral process, requiring the other party also to make submissions in writing. I am interested to hear what steps are in place for businesses, and especially small businesses, when a larger landlord or tenant refuses to enter arbitration fairly.

[Paul Scully]

If both parties wish to resolve their unpaid protected rent debt by an alternative form of arbitration, they may agree to do so. In terms of the arbitration itself, the businesses—either the landlord or tenant—can act unilaterally.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Temporary restriction on winding-up petitions and petitions for bankruptcy orders

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to consider that schedule 3 be the Third schedule to the Bill.

[Paul Scully]

Clause 26 and schedule 3 temporarily prevent landlords from petitioning, in relation to protected rent debt, to wind up businesses in scope of the Bill or petitioning for bankruptcy for businesses that are individuals, such as sole traders, that would otherwise be viable. The clause and the schedule support viable businesses by allowing debts to be resolved by mutual agreement or by the Bill’s arbitration system, which considers both parties’ circumstances in the exceptional context of the pandemic. As with the other temporary restrictions in part 3, the restrictions detailed in clause 26 and schedule 3 apply only in relation to protected rent debt.

[Ruth Cadbury]

We welcome the measure in clause 26 as it will prevent landlords from going through a back-door method of targeting businesses unfairly. We also support schedule 3 as it will ensure that viable businesses are protected and can enter into the much-needed arbitration process. Paragraph 3 of schedule 3 ensures that bankruptcy orders in relation to rent arrears made before the day on which the Bill becomes law shall have no power. This will prevent businesses that will be helped by the legislation from being declared bankrupt, which we support as it will protect otherwise viable businesses.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 27

Power to apply Act in relation to future periods of coronavirus control

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The measures in the Bill are a response to the unprecedented impacts of the pandemic and will support commercial tenants and landlords to resolve their rent debt. To ensure that we are prepared for a future situation of a further wave of coronavirus giving rise to further business closures, we are including a power to reapply the provisions in the Bill. This will enable the Government to reapply any and all provisions in the Bill so that we can take a targeted approach to respond to the specific circumstances of any future period of coronavirus.

[Ruth Cadbury]

Given the past few days and the news of business revenues plummeting, we of course welcome the clause. We know that many businesses are already feeling the pinch, as we have seen in the news. There is already worry and concern in the sector about staff shortages and rising supply costs, and on top of that businesses are concerned about customer numbers. The Government appear to rule out any return of covid-related support for businesses, but at least the clause offers some relief in respect of rent arrears. Although we welcome the inclusion of a power to ensure that businesses do not get punished for rent arrears in the future if they are forced to close, I take this chance to remind the Government that businesses are feeling the pinch, even if they have got over the outstanding revenue losses from the previous almost two years. We know that customers are cautious in the face of the new variant, and that businesses will be impacted, so we support the clause.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28

Power to make corresponding provision in Northern Ireland

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The Bill will not apply directly to Northern Ireland. Instead, this enabling power was requested by the Northern Ireland Executive. It is intended to allow them to introduce the measures in the Bill at their discretion. The arbitration scheme remains an option for Northern Ireland while they assess their need for those measures. We will of course continue to work closely with our counterparts in the Northern Ireland Executive.

[Ruth Cadbury]

We welcome clause 28, but our comments and concerns about businesses in England and Wales apply just as much to those in Northern Ireland.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29

Crown application

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

The Bill will bind the Crown where the Crown is a landlord under the business tenancies in scope of the Bill. I commend clause 29 to the Committee.

[Ruth Cadbury]

Clause 29 is a straightforward clause, setting out that the Bill binds the Crown. We have nothing further to add.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Clause 30

Extent, commencement and short title

Question proposed, That the clause stand part of the Bill.

[Paul Scully]

This clause sets out the territorial extent of the Bill, which has been carefully considered, and the continued engagement of the devolved Administrations. It reflects the differing needs of each part of the UK and ensures that the tenants and landlords that will most benefit from this measure can access it. It extends to England and Wales, with limited provisions extending to Northern Ireland and Scotland.

[Ruth Cadbury]

We have nothing further to add on clause 30, Mr Hosie. However, this is the last time that we will speak in this Committee, so I will take the opportunity to thank all those who have provided expert submissions to the Committee, who have spoken in the last week and who have sent written submissions. I thank Members for their attendance, and I thank the staff who have administered the Bill so smoothly and enabled us to finish so quickly.

I conclude with an overarching point. Some of the submissions that we have received, particularly this week, from expert bodies with significant legal and other professional expertise in the area of landlord and tenant law, arbitration and settlements still express significant concerns about the detail of the way the Bill is drafted. I hope that between now and Report and Third Reading, the Government will look at their comments, meet them and address some of the detailed and expert points that they raise. I fear that they probably know what they are talking about.

[Paul Scully]

I echo the hon. Lady’s thanks to you, Mr Hosie, to the Clerks and to everybody for making this happen. We want to ensure that we get the Bill into legislation as quickly as possible, but that does not mean that we will rush it and not have further consideration. Beyond the passage of the legislation through Parliament, we will continue to engage with stakeholders, including arbitration services, landlords and tenants, to ensure that we get it right. It is so important that we get this enacted now, so that landlords and tenants can get the benefits when they need them—now, not when it is too late.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Bill to be reported, without amendment.

Commercial Rent (Coronavirus) Bill

Paul Scully Excerpts

Consideration of Lords amendments
Wednesday 23rd March 2022 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

I beg to move, That this House agrees with Lords amendment 1.

[Mr Deputy Speaker]

With this we may take Lords amendments 2 to 20.

[Paul Scully]

Before I speak to the Lords amendments, I thank the shadow Ministers—the hon. Members for Feltham and Heston (Seema Malhotra) and for Brentford and Isleworth (Ruth Cadbury)—for their constructive and positive engagement during the Bill’s passage through the House. I have been pleased with the support for the Bill across both Houses. The Government made several amendments in the other place to ensure that the Bill is as useful as it can be. To that end, I believe that Members across this House will support the amendments.

I will begin with the Lords amendments that were introduced following extensive engagement with the Welsh Government; I am grateful for their positive and thoughtful discussions about the Bill. Lords amendments 1, 3, 4, 6 to 8, 10, 15 and 17 were introduced to allow Welsh Ministers to have rightful control over devolved matters.

Lords amendment 1 defines Welsh and English business tenancies to allow the Bill to distinguish between business tenancies in later provisions.

Lords amendment 3 clarifies that the power to extend the time limit for making a reference to arbitration could be exercised separately for English or Welsh business tenancies, as well as for both.

Lords amendment 4 removes a definition that is redundant due to Lords amendment 6 to clause 23.

Lords amendments 6 and 7 decouple the moratorium period from the period for making a reference to arbitration. They provide that the moratorium period will end six months from Royal Assent unless extended.

Lords amendment 8 inserts a new clause that means that the consent of Welsh Ministers would be needed to extend the moratorium period for Welsh businesses in respect of devolved matters.

On the power in clause 28—which was previously clause 27—to reapply the Act, Lords amendment 10 enables regulations under the clause to be made just for English or Welsh business tenancies, as well as for both.

Lords amendment 15 requires the consent of Welsh Ministers to exercise the power to reapply devolved provisions in relation to Welsh business tenancies.

Lords amendment 17 inserts a new clause that provides that Welsh Ministers can use the power in clause 28 concurrently with the Secretary of State insofar as it relates to the reapplication, in respect of Welsh business tenancies, of devolved provisions—that is, certain moratorium provisions.

Following those amendments, I am pleased to say that the Senedd has agreed a legislative consent motion, for which I thank them wholeheartedly.

Separately, I thank the Delegated Powers and Regulatory Reform Committee for its consideration of the Bill. The Committee raised concerns about clause 28, which, as I said, was previously clause 27. The clause provides that the Act can be reapplied if there are further closure requirements due to coronavirus.

The Committee’s concerns were about the breadth of the power and the potential for significant alterations to be made for a reapplication. In response, Lords amendments 12 to 16 were introduced to limit the power’s breadth. As a result, the power would still allow for targeted modifications in order to accommodate new dates and make adjustments to moratorium provisions to take account of new timeframes. However, the amended power could not be used to change the operation of the arbitration process or policy.

I am sure that Members will agree that the Committee’s points are important and will be reassured by the appropriate limitations.

Lords amendment 11 ensures that the power can be used in respect of closure requirements imposed after the protected period set out in the Bill, whether that is before or after the Bill is enacted and whether or not the closure requirement has ended when regulations are made. It ensures that the power will be clear and robust for any new waves of coronavirus. Along with Lords amendment 9, it also ensures that the language of clause 27 is consistent with that of clause 4.

We have continued to listen to stakeholder concerns. When the Bill was in the other place, the Royal Institution of Chartered Surveyors gave useful feedback relating to the exercise of the arbitration bodies’ functions to remove arbitrators on the grounds provided for in the Bill. The Arbitration Act 1996 gives arbitration bodies immunity from liability in relation to the function of appointing arbitrators; arbitration bodies were concerned that under the Bill they did not have explicit immunity from liability in relation to the function of removing them. In response, Lords amendment 18 clarifies that approved arbitration bodies have immunity from incurring liability for anything done in exercise of the function of removing arbitrators under the Bill, unless the act is shown to be committed in bad faith.

--- Later in debate ---

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I thank the Minister for the chance to raise issues with him earlier. I also thank colleagues in this House and the other place, as well as staff and all those who gave evidence to the Public Bill Committee.

As the Opposition have laid out here and in the other place, Labour has consistently recognised the need for a fair arbitration process to deal with the significant commercial rent arrears that have accrued during the pandemic. Our amendments were intended to strengthen and clarify the legislation, so that the new regime can be effective, accessible and affordable, and can fairly balance the interests of landlords and tenants.

Throughout the Bill’s passage, we have been clear that no otherwise viable business should face an overwhelming burden as a result of rent arrears that threaten its future. Likewise, commercial landlords must have access to clear mechanisms for recouping appropriate levels of arrears. The guiding principles in the process must ultimately be fairness for landlords and tenants alike, and the long-term interests of British businesses and jobs. I pay tribute to the landlords and tenants who have not waited for the Bill to make it to the statute book, but have used the time to work together in good faith in order to come to an agreement.

We should be clear that commercial rent arrears are just one of the challenges that many businesses face. With today’s announcement that inflation is at a 30-year high, many firms up and down our country face a cost-of-doing-business crisis. Labour recognises how difficult the past two years have been for businesses up and down the country. Sectors of our economy such as aviation, live events, travel and tourism have been hit particularly hard.

The Lords amendments, which are all Government amendments, help to clarify the Bill. In our view, they also give appropriate powers to the Welsh Government; we know that discussions were undertaken. The amendments improve the Bill and we support them all, but there are still a number of areas on which I would welcome clarity and assurances from the Minister on how the Government will move forward.

First, we continue to be concerned that the Bill contains no limits on the costs of arbitration. We cannot let high arbitration fees, or concerns that fees will be prohibitive, deter landlords and tenants from using the processes established under the Bill to achieve a fair solution. That would be a failure of policy and of planning.

We have previously called for a cap on fees, but the Government did not accept that proposal. I note that the Minister in the other place said a cap could be imposed if there was evidence that it was needed, but I should be grateful if this Minister would specify his intentions in that regard. Will he update the House on when guidance on the costs of the arbitration process will be published? Will he also confirm that Lords amendment 18—which relates to schedule 1—effectively limits the liability of the arbitral bodies in the discharging of their duties under the Bill, which is what I understood from his comments?

Ensuring the quality of arbitration is important, and we have consistently called for the Government to explain how they will ensure that there are sufficient numbers of arbitrators to handle the volumes of cases under the scheme. What discussions has the Minister had with the arbitral bodies on their capacity, and on maintaining a sufficient number of arbitrators with the necessary skills and experience, and what quality assurance does he expect will be in place? It is important to have reassurances on these issues, especially in view of the limitation of liability that we have put into the Bill.

Finally on this issue, let me say that the arbitration process will not carry confidence unless the decisions are demonstrably fair and there is consistency of assessment. The Minister will know that business organisations had particular concerns about how the “viability of the business” would be established. Viability is referred to in some of the draft guidance published in February, but what review has the Minister undertaken of that guidance with stakeholders, and when will he finalise the guidance that will accompany the Act?

Let me turn briefly to the detail of the Lords amendments. The Bill, which applies largely to England and Wales, confers a number of powers on the Secretary of State in respect of Wales. Lords amendments 1, 3 and 10 are designed to ensure that different provisions can be made in relation to Welsh and English business tenancies. Lords amendment 3 clarifies that the power to extend the time limit for arbitration can be exercised separately for English and Welsh businesses, which is an improvement, while Lords amendment 10 allows the Secretary of State to reapply the Act to both England and Wales, or to just one of the nations.

Similarly, Lords amendments 4, 6 to 8 and 17 give Wales increased powers to extend the moratorium period, which is the period in which tenants have protection against enforcement action by the landlord in relation to covid rent arrears. This must, of course, be a process that works for both England and Wales, but also, looking at the Bill overall, for Scotland and Northern Ireland, in so far as there are limited provisions that apply to those nations.

Lords amendment 8 inserts a new clause requiring the Welsh Government to consent to any extension of the moratorium period for Welsh business tenancies under clause 23. It states that this moratorium period must be the same length as the arbitration period. Lords amendments 6 and 7 allow for the new clause specified in Lords amendment 8 by proposing that the current moratorium period should be six months long, rather than being tied to the arbitration period. This change allows for different moratorium periods to apply in England and Wales. We support those changes because we recognise that the Welsh Government should have a say in the extension of the moratorium period in Wales.

Lords amendments 12 to 14 were tabled in response to the report by the Delegated Powers and Regulatory Reform Committee. Lords amendment 12 removes the Government’s power to specify certain parts of the legislation that would not apply if the Bill itself were reapplied. Previously, the Minister would have had the power to pick and choose which parts of the Bill were reintroduced or reapplied, but Lords amendment 13 ensures that the Government can make modifications to a reapplication of the Bill only if they are “necessary”. That is important for the role of Parliament and the Welsh Senedd.

Lords amendment 15 allows the Minister to reapply the Bill in Wales only with the consent of the Welsh Government. Lords amendment 14 allows different provisions to be made in England and Wales during reapplication. Labour supports these amendments, and it is important that the Government have listened to the concerns of the Delegated Powers and Regulatory Reform Committee, which is a respected voice on these matters.

We are also pleased to see Lords amendments 5 and 19, which ensure that neither the tenant nor guarantors nor previous tenants are liable for any protected rent debt that an arbitrator has cancelled. Similarly, Lords amendment 20 ensures that neither the tenant nor guarantors nor previous tenants can be subject to winding-up petitions or bankruptcy orders for protected rent during the moratorium period. On Second Reading, I raised Labour’s concerns about ensuring that not only tenants but anyone liable for their rent are protected during the moratorium period, so I am pleased that these amendments support that protection.

Lords amendment 2 ensures that the provisions in clause 4, specifying closure requirements, apply to the closure of businesses and premises. On Third Reading, I raised concerns that businesses that no longer occupied the premises—because, for example, the pandemic had made a particular location unprofitable—would not be able to access the arbitration process. We are pleased to see this amendment, which ensures that the Bill explicitly allows such businesses to benefit from the provisions in this legislation.

In conclusion, the Lords amendments make some important changes to the Bill. They rightly increase the powers of the Welsh Government over this legislation, provide appropriate constitutional limits to the Government’s powers on reapplying the Bill, and ensure that tenants, guarantors and previous tenants are all protected during the moratorium period. However, Minister should provide further assurances in connection with these amendments—for example, on the cost of the arbitration process, and on ensuring that arbitrators apply the measures consistently across cases. Nevertheless, Labour supports all the Lords amendments. We support the Bill’s passage to Royal Assent and look forward to its implementation as soon as possible.

[Paul Scully]

I thank the hon. Lady for her contribution today, and for the way in which she has engaged with me and the Bill team. I also thank other Members across the House for their contributions. The Bill’s passage through both Houses has been a positive and collaborative process, and that is testament to its importance in supporting businesses in recovering from the ongoing impacts of the pandemic. The amendments made in the other place were made for good reason and will serve only to improve the Bill. Let me spend a couple of minutes trying to answer the questions that she has rightly and understandably raised.

The hon. Lady talked about the cost of arbitration. We want to ensure, as best we can, that arbitration fees are predictable and affordable. We have discussed this at length at various stages of the Bill, with good reason. The Bill aims to support both tenants and landlords in resolving rent debt, and it is therefore important that the scheme remains affordable and accessible. Approved arbitration bodies will have the function of setting arbitration fees, and they have the expertise to set them at a level that will ensure that the scheme is affordable while also incentivising arbitrators to deliver the scheme in good time. In the interests of transparency and accessibility, the bodies must publish the details of the arbitration fees on their websites, so that the applicant will know in advance how much it will cost to go to arbitration.

We will monitor the affordability of the scheme by engaging regularly with arbitration bodies, as well as with tenants and landlords. We will be able to judge how things are going by those early cases going through the process. The Secretary of State has the power to cap fees, should they become unaffordable. That power can be used where necessary, but it cannot used prematurely, because we do not want to reduce the number of arbitrators available to act, thereby risking the delivery of the scheme.

The hon. Lady talked about guidance on costs and the viability of businesses. I assured the House that we would bring forward guidance for arbitrators, and we are looking to expedite that, so that it happens within a couple of weeks of the Bill receiving Royal Assent. I am pleased to say that we have published the draft guidance, which is on the Government website, in order to gather feedback from the arbitrators. That addresses viability clearly by setting out a non-exhaustive list of evidence that an arbitrator could have regard to in assessing viability. The final version of the guidance will be published shortly after Royal Assent. Viability is deliberately not defined, because of the vast array of different business models, both within and between sectors.