Commercial Rent (Coronavirus) Bill (First sitting)

Sara Britcliffe Excerpts

Committee stage
Tuesday 7th December 2021 Public Bill Committees

[Ruth Cadbury]

Q Is there anything else to add about the arbitration processes in the Bill?

Dominic Curran: No, I think it is a reasonable set of stages. There is a helpful flowchart in the revised code. The only point I would make is that we have a situation where the arrears, at least in retail, are historical in that they go up only to April 12 or the end of March, given rent payment dates. We want the legislation to be passed as quickly as possible, the arbitrators to be announced as quickly as possible and the process to start sooner rather than later, because it is the uncertainty that is particularly damaging for any business.

Kate Nicholls: I agree with Dominic that the key thing is that we need to have confidence from both parties to be able to and want to use the process to resolve these outstanding matters as rapidly as possible. I am therefore more attracted to using a multiple variety of arbitration bodies, rather than just one, because we need to make sure that there is no delay in appointing arbitrators and their being able to take on the work. I also agree with Dominic that it is hugely important that they have broad-based financial and business understanding and sector-specific—in our case—understanding of the businesses.

This is not necessarily a legal issue or a dispute resolution issue. This is a financial issue that centres on viability and affordability, and therefore an understanding of the nature of the business, the way it operates, the cost of business and the costs coming down the line, as Dominic alluded to, is critical to an understanding of affordability and ability to pay. Those are the key elements that we want to see. Confidentiality, given that you are effectively opening books and sharing financial information, is really important because tenants clearly need confidence that that will be protected. However, I do not see any problems with the Bill as it is currently drafted.

[Sara Britcliffe (Hyndburn) (Con)]

Q Ms Nicholls, you touched on templates earlier. What more can we do to make sure that commercial tenants are aware of the arbitration process available to them?

Kate Nicholls: As soon as we have got the legislation through, we need the communication out there as rapidly as possible that this is coming, so that the scope of the Bill, as it goes through the House, is clearly understood. We are doing a wide range of outreach through the trade press and through our own communication channels to cascade that information out, not only through the trade association but more broadly. We are working closely with BEIS and MHCLG to make sure that that communication goes out there.

I think it is then about making sure that we have a communications plan post the Bill being enacted to ensure that there is confidence in the arbitration process and the arbitrators, and that we encourage people to use it. It will then be down to the industry to make this work. We will work flat out to do that, and to facilitate the tools that people need to enter into confidential negotiations, using the code of practice, and then arbitration if they absolutely need to as a last resort. Arbitration should be a matter of last resort in this case. Success for the Bill and the trade associations helping commercial tenants through this will be if a small number of cases actually need to go to arbitration to be resolved.

[Sara Britcliffe]

Q If further restrictions were to come in, what effect would that have on businesses?

Kate Nicholls: Clearly, it affects our ability to pay and it affects viability. It is quite clear, and Ministers have been quite clear about this over the course of the last week, that we now know and understand in full the economic effects of any restrictions on businesses, such as in hospitality, which have been asked to bear a disproportionate burden over the course of the whole pandemic. It is quite clear that businesses would not survive without further additional support if additional restrictions were imposed. That would be one measure that would be necessary. Your ability to pay your rent on time a quarter in advance is significantly impaired if your ability to trade is restricted. Trading remains quite soft, and consumer confidence remains fragile, so restrictions would have an immediate and significant effect on ability to pay, viability and affordability—all the tests we are talking about. As a minimum, you would need to extend some of these protections going forward.

[Sara Britcliffe]

Dominic, do you want to add something?

Dominic Curran: Kate said exactly what I would have said; if you just replace “hospitality” with “retail”, you are more or less there. The only thing I would add to Kate’s comments is that, just as at the peak of the pandemic, with the business rates holiday and restart and reopening grants, when retail and hospitality were able to reopen, you would need to see a package of measures to support businesses in the event of any further restrictions.

[Peter Dowd (Bootle) (Lab)]

Q An early-day motion tabled on 27 April 2020 expressed concern—I will not go into the details—about some large pub companies charging rents. You can have a look at it after the meeting. Partly in relation to that, I just want to get a feel of the differences you may have seen between small and large tenant and landlord businesses and how they have handled rent arrears. Have you seen any differences at all?

Kate Nicholls: If you look at the pub-owning businesses and the tied pub companies, there has been a far greater degree of forgiveness of rent among those businesses. It might not be 100% for all of them, but significant rent concessions have been granted throughout the periods of closure, and immediately granted. There has also been a greater willingness to defer rent, allowing rent debt to be accrued and rescheduled over a longer period of time.

If you look at the commercial sector, there has been a variety of different approaches, and there is not anything that really reflects the size of landlord or of tenant businesses in terms of a willingness to negotiate and to reach agreement. Some very small landlord companies have been very willing to give rent holidays, concessions and deferments, and some large commercial companies have been very difficult and intransigent in coming to the table and negotiating, and are taking further enforcement action. It is less to do with the size; it is more the nature of the landlord that has caused the biggest challenges, and the ones that we have found taking enforcement action tend to have been the larger commercial landlords, who have taken a more robust line.

--- Later in debate ---

[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.

[Sara Britcliffe]

Q Can I clarify that, in answer to a previous question, you stated that you would want documents only?

Lewis Johnston: I think so. I think that would be the assumption. I think it is right that there is an option to go for a hearing if it is requested, but I think that the default assumption should be that it is documents only. That is most in keeping with the intention and aim of the Bill, which is to have very clear, rapid-fire means of redress.

[The Chair]

Q Given that there are no further questions and we are not pressed for time, Lewis, do you have any other observations that have not been drawn out in the questions that you have received so far?

Lewis Johnston: No, that has covered most of it. The Chartered Institute of Arbitrators will be making a written submission to the Committee later this week as well, so that might clarify or refine some of the points that I have raised. We are very pleased to have been invited to give evidence here today, and we will be pleased to engage with the Committee as you continue with the work of refining exactly what the scheme and the process will be.