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.