Commercial Rent (Coronavirus) Bill

Paul Scully Excerpts

Wednesday 12th January 2022 Commons Chamber

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

Before I respond to the Opposition amendments, I would first like to thank the hon. Members for Feltham and Heston (Seema Malhotra) and for Brentford and Isleworth (Ruth Cadbury) for their continued constructive engagement with the Bill and for their contributions to date.

The Bill is key to ensuring we support viable businesses that will continue to thrive and contribute to our economy in a way that does not risk the insolvency of their commercial landlords. We remain committed to these principles. The arbitration system is designed to be a quick, effective and impartial solution for rent debts that cannot otherwise be resolved, and we currently expect that all applications for arbitration will be made within six months and that cases should be resolved as soon as practicable afterwards.

Requiring a review of the arbitration process within three months of the Bill being enacted could slow down the process by adding additional steps and requirements for arbitrators that have already proved their suitability for the role. It might also delay the resolution of cases while arbitrators await the findings of the review before making awards.

Under the Bill’s existing provisions, the Secretary of State can already request a report from approved arbitration bodies covering the exercise of their functions under the Bill, including details of awards made and the application of the principles set out in the Bill in the arbitrations they oversee.

Additionally, there is a requirement for arbitrators to publish the detail of awards made, including the reasons behind them. This will show how arbitrators have applied the principles of the Bill in coming to their decisions. We will carefully monitor the position, and if there is a need to revise the guidance, such as to clarify or add new information for arbitrators, the Secretary of State is already able to do so.

I believe that requiring a review would not benefit the aims of the Bill or, indeed, the people who would want to use the new arbitration system to resolve rent disputes, and I therefore hope new clause 1 will be withdrawn.

On amendment 9, as hon. Members will be aware, the Bill defines a business tenancy as a tenancy to which part 2 of the Landlord and Tenant Act 1954 applies—that is to say it is a tenancy comprised of property that is or includes premises that are occupied by the tenant for business purposes. I reassure hon. Members that the Government intend such property to be considered occupied even if it has been mandated to close for some time in full or in part. A tenant will still be in occupation if they are operating their business remotely and intend to return, so I do not believe amendment 9 is necessary. I hope it will be withdrawn.

I should say that we also anticipate courts will take a pragmatic view of occupancy, given the underlying rationale behind the Bill to introduce a system of binding arbitration for businesses that have built up rent debt as a result of Government-mandated closures.

On amendment 13, the operation of approved arbitration bodies follows a market-based policy approach, leaving it to arbitration bodies to manage their internal capacity processes. Our engagement with arbitration bodies suggests that this is the right approach. Looking purely at the number of arbitrators disregards the fact that an arbitrator will be able to take on more than one case at a time. Although the application process will contain a question on the number of arbitrators available, we recognise that this will provide an under-representative picture of capacity in the market, so I am not able to accept the amendment.

On amendment 10, I am grateful to the hon. Members for Feltham and Heston and for Brentford and Isleworth for seeking to ensure consistency between the Bill and the code of practice. I reassure them that the Government’s intention under both the Bill and the code is for the Bill, including the arbitration system it establishes, to come into force as soon as possible. We want the arbitration system to start as soon as possible given its importance to supporting resolution of protected rent debt and a return to normal market operation. The aim remains to bring the Bill, including the arbitration system, into force by 25 March 2022. That is reflected in the code of practice, as updated on 9 November 2021. I am happy to consider whether clarification would be useful within the code. The code outlines the processes and principles that we are seeking to introduce through the Bill. It has given, and continues to give, businesses the opportunity to negotiate in line with those principles until the Bill comes into force.

The March timing is linked to the expiry of the moratorium on forfeiture and the restrictions on use of the commercial rent arrears recovery regime. The Government have been clear that they intend such measures to remain in place until the Bill is passed, if that is earlier than their expiry.

I turn to amendment 14. Clause 11 as it stands must be read with section 34 of the Arbitration Act 1996, which states:

“It shall be for the tribunal to decide all procedural and evidential matters”.

That provides arbitrators with the discretion to call for further evidence where that is considered necessary. There is also no express limit in the Bill on the types of evidence that parties can put forward to support their proposals. We are aiming for a quick and efficient process to restore businesses to normality. The aim of requiring supporting evidence is therefore to help focus participants’ minds on the most pertinent evidence that will support their proposals. It will have to be sufficient to show why the proposal is consistent with the principles and should be adopted. That will help arbitrators to resolve cases quickly. A widening of the clause could lead the paper-based arbitration process to become lengthy, inefficient and costly for the parties, who must meet their own legal and other costs.

I turn to amendment 15. As I have previously explained, clause 17 establishes the timeframe for making awards, requiring arbitrators to make an award as soon as is practicable, or within 14 days in the case of an oral hearing. While we expect that most cases will be resolved quickly, the clause also provides arbitrators with the necessary flexibility to take additional time to make decisions on more complicated cases. One or both of the parties may each simply submit one formal proposal that is final, or one or both may decide to submit revised proposals as final proposals. They may also agree to extend the time limit for submitting initial or revised proposals. That means that it is hard for an arbitrator to know exactly when final proposals have been submitted and when the clock on the 14-day time limit would start running.

Arbitrators may need to request further information after receiving proposals. It would therefore be impractical to impose a time limit. Imposing a 14-day time limit for issuing awards following an oral hearing, as the Bill does—although the time limit can be extended—is less problematic because the arbitrator will have seen the final proposals and had time to consider them before the hearing. They also have an opportunity to ask questions about them during the hearing, which would conclude on that set date.

On amendment 16, I agree that fee levels are an important consideration. The Bill adopts a market-based approach. Arbitration bodies are best placed to decide on fee levels given their experience in costing arbitration schemes to make it affordable for all and attractive enough for arbitrators to want to take on cases. The Secretary of State’s powers are intended to be used only when circumstances determine that to be appropriate. Setting a limit on fees at this point could reduce the number of arbitrators able to act, which could undermine the arbitration mechanism in the Bill. There is no evidence that such a limit is needed. However, if it is, the Secretary of State is prepared to exercise the power as appropriate based on the available evidence.

On amendments 11 and 12, I agree that it is important to encourage behaviour in line with the code of practice and the Bill’s general principles. A key aim of the Bill is to restore businesses to normality as quickly as possible. We have carefully designed the process with arbitrators to make it quick and cheap to navigate, and accessible without further support. The amendments, however, could result in prolonged arguments on costs, appeals and enforcement, delaying a return to that normality that we all seek. They could also encourage the use of legal and other support where that is not needed, lengthening the time to resolution and potentially increasing costs for all parties.

The amendments could create a situation in which one party’s viability or solvency could be endangered through having to pay costs other than arbitration fees. Widening the discretion to include other costs could also lead to an uneven playing field, especially for smaller businesses who could end up paying high legal costs for larger companies. Under the Bill, the arbitrator has discretion to deviate from the general rule of evenly splitting the costs of arbitration fees between parties where appropriate, based on the circumstances of the case, such as when one party has not reasonably co-operated.

On amendment 17, the Bill as drafted allows for a stay of debt claims that include ringfenced debt and are issued between 10 November 2021 and the Bill coming into force. The Bill enables ringfenced debt under those claims and under judgments made in respect of such claims to be subject to arbitration. I understand the concern about the date, but it is not an arbitrary date, because 10 November 2021 follows the Bill’s introduction and the Government’s announcement of the policy. The Bill seeks to introduce proportionate measures that address the interests of both landlords and tenants, whereas the amendment would allow for arbitration of protected debt which was subject to earlier proceedings or judgments when the parties could not have known that this was proposed at the time when the proceedings were issued, so reopening those situations.

Let me now deal with the technical amendments tabled by the Government and the substantive amendment that we are tabling at the request of the Northern Ireland Assembly. Amendments 1 and 2 are technical amendments to make it clear that the definition of “service charge” in clause 2 covers both fixed and variable costs, as well as costs incurred by the landlord insuring against loss of rent. That has always been our intention, and the amendments help to make it clear, ensuring that all relevant costs and charges are within the scope of the arbitration process.

Technical Government amendments 3 and 8 make it clear that the provisions of clauses 10 and 24, in so far as they relate to company voluntary arrangements or certain restructurings, apply to limited liability partnerships. That is in addition to their usual application to companies. These are minor clarificatory amendments to improve the technical drafting of the Bill.

Amendments 4 to 7 are minor and technical, and clarify the operation of arbitration and all hearing fees and expenses. Amendments 4 and 7 make it clear that the general rule is that the party that has paid fees is to be reimbursed half the amount by the other party, but where appropriate, the arbitrator may determine a different proportion, including zero. Amendment 5 makes a small correction to clause 19(6) to make it clear that except for reimbursement of arbitration or oral hearing fees, a party must meet its own legal or other costs. Amendment 6 makes it clear that costs incurred in connection with arbitration are not recoverable under an existing clause in the lease. Allowing cost recovery via the lease concerned would undermine the specific provisions in the Bill on fees, expenses and costs. It would also put the party able to rely on the lease terms at an advantage, as they could be more confident about investing money in their case, in the knowledge that the costs could ultimately be recovered from the other party. In addition, allowing this could potentially put the viability of the other party at risk, even when an arbitral award had been handed down in that other party’s favour.

I turn now to amendments 18 and 19. The Northern Ireland Department of Finance and Department for the Economy have requested the removal of the existing delegated power for them to make regulations for purposes corresponding to the purposes of the Bill, set out in clause 28. This decision was taken for several reasons, which include the availability of existing dispute resolution facilities, plus a lack of compelling evidence that rent debt in Northern Ireland is on a scale to require additional measures. The rationale for the policy in England and Wales remains strong, and this is where our evidence of rent arrears threatening jobs and business insolvency is focused. The removal of clause 28 necessitates an amendment to the Extent provision in clause 30(2), which currently refers to this provision.

Amendments 20 and 21 ensure that clause 24(4) extends to Northern Ireland in relation to company compromises and arrangements, but not company voluntary arrangements. That reflects the territorial extent of the Companies Act 2006 referred to in this provision.

I commend the amendments to the House.

[Seema Malhotra]

On the basis of the Minister’s comments, particularly those relating to ongoing review, and other comments relating to the amendments, I beg to ask leave to withdraw new clause 1.

Clause, by leave, withdrawn.

Clause 2

“Rent” and “business tenancy”

Amendments made: 1, page 2, line 19, leave out sub-paragraph (ii) and insert—

(ii) which is a fixed amount or an amount that varies or may vary according to the relevant costs (or a combination of the two),”.

This amendment clarifies that the expression “service charge” includes any amount payable under the terms of a tenancy for something mentioned in clause 2(2)(c)(i), whether it is a fixed amount or a variable amount (or a combination of a fixed part and a variable part).

Amendment 2, page 2, line 22, leave out from “costs”” to “in” and insert

“includes costs incurred by the landlord in connection with insuring against loss of rent or”.

This amendment clarifies that the costs of insurance against loss of rent are within the expression “service charge”, in addition to insurance costs relating to the demised premises and any common parts.

Clause 10

Requirements for making a reference to arbitration

Amendment made: 3, page 8, line 12, at end insert

“(as well as to companies).”

This is a drafting amendment to make clear that clause 10(6) (which applies provisions of the clause to LLPs) operates in addition to the rest of the clause

Clause 19

Arbitration fees and expenses

Amendments made: 4, page 12, leave out lines 14 to 18 and insert

“(subject to subsection (5A)) also make an award requiring the other party to reimburse the applicant for half the arbitration fees paid under subsection (4).

‘(5A) The general rule in subsection (5) does not apply if the arbitrator considers it more appropriate in the circumstances of the case to award a different proportion (which may be zero).’”

This amendment clarifies that the rule in the current clause 19(5)(a) (that the party paying the arbitration fees is to be reimbursed half of the amount) is the general rule, although the arbitrator is able to determine a different proportion, including zero, where appropriate.

Amendment 5, page 12, line 19, leave out “Otherwise” and insert

“Except as provided by subsection (5) and section 20(6),”.

This corrects a small error in clause 19(6). The word “Otherwise” at the start of clause 19(6) currently refers back to clause 19(5), but it also needs to take account of the provisions of clause 20(6) which makes provision corresponding to clause 19(5) for oral hearing fees.

Amendment 6, page 12, line 19, at end insert —

“(6A) Legal or other costs incurred in connection with arbitration (including arbitration fees) are not recoverable by virtue of any term of the business tenancy concerned.”

The amendment clarifies that arbitration costs are not recoverable under a tenancy term enabling recovery of enforcement costs relating to a breach of covenant under the tenancy. The parties’ rights and obligations in relation to arbitration costs are governed by clauses 19 and 20.

Clause 20

Oral hearings

Amendment made: 7, page 12, leave out lines 36 to 40 and insert

“(subject to subsection (6A)) also make an award requiring the other party to reimburse the applicant for half the hearing fees.

‘(6A) The general rule in subsection (6) does not apply if the arbitrator considers it more appropriate in all the circumstances to award a different proportion (which may be zero).’”

This amendment clarifies that the rule in the current clause 20(6)(a) (that the party paying the oral hearing fees is to be reimbursed half of the amount) is the general rule, although the arbitrator is able to determine a different proportion, including zero, where appropriate.

Clause 24

Temporary restriction on initiating certain insolvency arrangements

Amendment made: 8, page 14, line 37, at end insert

“(as well as to companies).”

This is a drafting amendment to make clear that clause 24(4) (which applies provisions of the clause to LLPs) operates in addition to the rest of the clause.

Clause 28

Power to make corresponding provision in Northern Ireland

Amendment made: 18, page 15, line 33, leave out clause 28.

The responsible Northern Ireland minister has informed Her Majesty’s Government that the powers to be conferred by clause 28 are no longer needed. This amendment would omit the clause, which would otherwise require the approval of a Legislative Consent Motion in the Northern Ireland Assembly.

Clause 30

Extent, Commencement and Short Title

Amendments made: 19, page 16, leave out lines 14 and 15.

The reference in clause 30(2) to clause 28 is no longer correct if clause 28 is left out of the Bill. The rest of clause 30(2) (which provides that Part 4 of the Bill extends to the whole of the UK) is reproduced in Amendment 20, so the whole of clause 30(2) can be omitted.

Amendment 20, page 16, leave out lines 18 and 19 and insert—

“(a) in section 24—

(i) subsections (1), (2)(c) and (3), and

(ii) subsection (4) so far as relating to a compromise or arrangement under section 899 or 901F of the Companies Act 2006,

(b) Part 1 so far as relating to the provisions mentioned in paragraph (a), and

(c) this Part.”

This amendment and Amendment 21 secure that clause 24(4) extends to Northern Ireland in relation to company compromises and arrangements, but not company voluntary arrangements. This is for consistency with the extent of the legislation covering those matters.

Amendment 21, page 16, leave out line 21 and insert—

“(a) in section 24—

(i) subsection (2)(a), and

(ii) subsection (4) so far as relating to a company voluntary arrangement,”.—(Paul Scully.)

See the explanatory statement for Amendment 20.

Third Reading

Queen’s consent signified.

[Paul Scully]

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

It is a pleasure to lead the Bill on Third Reading. I thank Members on both sides of the House for their support and for the many insightful contributions we have had throughout the Bill’s passage—I say that slightly tongue in cheek, because the Bill has gone through in good time. That is because of the collaboration we have had and the understanding of the need to pass this legislation with good speed, but there has none the less been some really constructive scrutiny. I am especially grateful to the shadow Ministers, the hon. Members for Feltham and Heston (Seema Malhotra) and for Brentford and Isleworth (Ruth Cadbury), for their positive engagement throughout.

These debates, and indeed the continued challenges presented by the ongoing pandemic, have emphasised just how important it is that we continue to support tenant and landlord businesses in navigating the impacts of the pandemic. The Bill does that by facilitating the resolution of certain pandemic-related commercial rent debts and supports landlords and tenants on the road to recovery. It is a purposefully focused and narrow Bill, addressing rent debt accrued by businesses mandated to close if that rent debt is attributable to a protected period as set out in the Bill.

The Bill establishes a temporary binding arbitration scheme for such rent debt, which will be delivered by independent arbitral bodies. There has been welcome debate about the specifics of the scheme, especially around the fees, as well as about the ability of arbitrators to determine the viability of businesses. We will continue to assess the impact of the cost of arbitration on businesses, especially small and medium-sized enterprises, to ensure that the binding arbitration scheme is not prohibitively priced. Guidance will be published for arbitrators, with comprehensive input and engagement from arbitrators themselves. Arbitral bodies will be empowered to deliver the scheme with confidence.

Following agreement on Report, we have made some technical amendments to better achieve the aims of the scheme. Those minor changes include clarifying certain provisions, including the definition of “service charge”, but we have also made a more substantial amendment in removing the delegated power for Northern Ireland to introduce similar provisions to those in the Bill. That was done at the request of the Northern Ireland Executive. They initially looked at this and wanted to be included, but as they looked further they realised that sufficient provisions were already in place. However, we are grateful for their engagement on the Bill.

The outstanding commercial rent debt still poses a significant threat to commercial tenants and landlords in England and Wales. I welcome the recognition from both sides of the House of the need for the Bill.

I thank the Clerks of the House for expertly steering the legislation through the House. I also thank my private office—Rhianna Patel and Guy Brindle—and the officials who have worked on the Bill: Charles McCall, Carl Creswell, Jessica Barnaby, Radhika Sundaram, Hamza Shoaib, Geraldine Haden, Jane Chelliah-Manning, Matthew Beese, Henry Hutton, Louise Dobrin, Sarah Machen and Jahan Meeran.

This Bill demonstrates the Government’s commitment to supporting the orderly resolution of commercial rent debt accrued during the pandemic, and I am pleased to have supported its passage. On that basis, I commend it to the House,