[Relevant documents: Second Report of the Business, Energy and Industrial Strategy Committee of Session 2019-21, The impact of Coronavirus on businesses and workers: interim pre-Budget report, HC 1264, and the Government response, HC 119.]
Consideration of Bill, not amended in the Public Bill Committee
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 guidance to arbitrators about the exercise of their functions under the Act.”—(Seema Malhotra.)
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.
Brought up, and read the First time.
With this it will be convenient to discuss the following:
Government amendments 1 and 2.
Amendment 9, in clause 2, page 2, line 40, at end insert—
“(6) Notwithstanding subsection (5), the provisions of this Act shall extend to a business tenancy irrespective of whether the property comprised in the tenancy is occupied by the tenant.”
This amendment broadens the definition of business tenancy to cover arrangements in which the property is not occupied by the tenant.
Amendment 13, in clause 7, page 5, line 19, at end insert—
“(2B) The Secretary of State must ensure that bodies approved under subsection (1) have sufficient numbers of arbitrators (whether alone or as a member of a panel of arbitrators) required to conduct arbitrations under this Part.”
This amendment would require the Secretary of State to ensure that the approved arbitration bodies collectively have sufficient capacity to hear all arbitrations under this Part.
Amendment 10, in clause 9, page 7, line 7, leave out from “beginning” to the end of line 8 and insert “25 March 2022”.
This amendment revises the period for a reference to arbitration to be made in order that it is consistent with the Code of Conduct.
Government amendment 3.
Amendment 14, in clause 11, page 8, line 21, leave out “supporting evidence” and insert
“any evidence relevant to the proposal.”
This amendment would require a formal proposal put forward under this section to be made on an open-book basis.
Amendment 15, in clause 17, page 11, line 13, after “practicable” insert
“and no later than 14 days”.
This amendment would require awards in arbitrations which do not have an oral hearing to be made within 14 days.
Amendment 16, in clause 19, page 12, line 6, replace “may” with “must”.
This amendment would require the Secretary of State to make regulations specifying limits on arbitration fees.
Amendment 11, page 12, line 13, before “When” insert “Subject to 6A,”.
This amendment is consequential to Amendment 12.
Government amendments 4 to 6
Amendment 12, page 12, line 19, at end insert—
“(6A) When the arbitrator makes an award under section 13 or 14, the arbitrator may also make an award requiring that a party at fault pays costs which it has caused the other party to incur.
(6B) For the purposes of 6A, a party is at fault where the arbitrator considers that the conduct of the party before or during the proceedings is unreasonable or improper.”
This amendment would empower the arbitrator to make an adverse costs award where the arbitrator considers that a party has acted unreasonably or improperly.
Government amendments 7, 8 and 18 to 21.
Amendment 17, in schedule 2, page 19, line 6, leave out sub-sub-paragraph (a).
This amendment would extend the debt claims over which a party could apply to the court for the proceedings to be stayed to claims made before 10 November 2021.
It is a pleasure to speak to new clause 1 and amendments 9 to 17, which stand in my name and in the name of my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury).
A process for resolving commercial rent arrears is very much needed, as dealing with the financial pressures brought on by covid is vital for landlords and tenants alike. Against that backdrop, Labour broadly welcomes the Bill, but we believe that the Government can and should do more on business support. That context is important because covid is not over. Business costs continue to rise, and they are also driven by rising fuel costs and inflation. Economic forecasts for the next three to five years project low growth, high inflation and high taxes. Managing financial pressures and supporting viable businesses to do so—that is the helping hand that we need in place as businesses navigate the uncertain road ahead and as some sectors recover faster than others.
To access the opportunities that we seek to ensure that the Bill provides, we need to be sure of the consistency, affordability and accessibility of arbitration and to ensure that the system operates effectively and fairly. On that basis, we have tabled new clause 1 and our other amendments in a positive spirit, to continue the dialogue that we had at the earlier stages of the Bill, because we support it and want it to work as effectively as possible.
On consistency, the Minister will appreciate that there will be retail and hospitality businesses with numerous landlords, and landlords with numerous tenants; businesses may therefore be party to more than one case under the new system. Predictability and consistency will be vital if those businesses are to have faith in the system, so our new clause 1 would require the Secretary of State to conduct a review of awards to assess whether clauses 15 and 16 have been interpreted consistently. The review would need to be conducted
“no later than three months following the day on which this Act is passed”,
and where the Secretary of State identifies material inconsistencies, he would need to publish or amend guidance to arbitrators as necessary. We believe that such a review would be welcomed by landlords, tenants and arbitrators and would ensure that the system is well understood.
On the accessibility and affordability of the new scheme, the definition of “business tenancy” in clause 2 has important consequences. Only tenancies in which the tenant is in occupation of the property fall within the Bill’s scope and can therefore access the arbitration scheme that it establishes. Let me give the House two examples of circumstances that could fall outside the Bill because of that definition.
First, Sir Paul Morgan, a specialist in property arbitration, has set out the case of a tenant who leaves a property unoccupied because of covid restrictions and does not now intend to reoccupy it when the restrictions end. As Sir Paul explains, the tenant may have a viable business but may not wish to reoccupy the particular premises for which the rent was due. Under the Bill as it stands, there would not be a business tenancy in such a case and the tenant would not be able to claim the benefit of the Bill in relation to that property, where the company was a tenant of that property during the period that is protected.
Secondly, there might be a situation where there is a head lease and a sub-lease on the property, for example where there is a franchising arrangement and the franchisee is the sub-tenant. In such a situation, the head lessee does not occupy the property and therefore could not benefit from the reliefs under the Bill, whereas the sub-tenant could.
Labour’s amendment 9 would fill those gaps, broadening the definition of “business tenancy” to cover arrangements in which the property is not occupied by the tenant. Unless the Minister can confirm that in the examples I have given it is intended that the leases would fall outside the new regime, I very much hope that the Government will recognise the gap and support our proposed changes.
We have tabled amendment 10, in relation to the period for reference to arbitration, in the same spirit of constructiveness. Clause 9 establishes a six-month period for a tenant or landlord to make a reference to arbitration, for which the clock starts on the day on which the Act is passed. We recognise and support the need to act quickly, but want to ensure that the full six months is available to tenants and landlords. The code of conduct suggests that the arbitration scheme will be operational on 25 March 2022, but what happens if the legislation passes before that date? Will that mean that parties have less than six months to make a reference? What if the legislation is not passed until a later date? Presumably, the current code of conduct would then need to be amended and existing protections extended. Amendment 10 reflects the suggestion by Bill Chandler of Hill Dickinson LLP that the date for referrals to open be fixed as 25 March 2022 irrespective of whether the legislation is passed. I would be grateful for the Minister’s feedback on that and on the importance of these questions in relation to improving accessibility to and the clarity of the new regime.
Let me turn to the question of cost. The scheme will be a success only if it is affordable. In Committee, the Minister acknowledged the importance of affordability and suggested that he was working with relevant bodies that may be appointed to agree cost schedules. Could the Minister update the House on those discussions? Clause 19 gives the Secretary of State the discretion to specify ceilings for arbitration fees in secondary legislation. Given the concerns of stakeholders and the financial pressures they are facing, the Secretary of State should be required to set a limit on arbitration fees, and that is the intention of amendment 16.
On county court judgments, the Minister will know that many commercial tenants were deeply frustrated that the temporary protections introduced to assist businesses struggling to pay their rent did not include protections against county court judgments and High Court judgments. UKHospitality and others have been calling for this protection for months. While it is welcome that the Government have finally listened to industry and to Labour, and improved the provisions that would stay any debt proceedings made after 10 November, choosing this cut-off date has had some perverse consequences.
As we heard in Committee, the result of this arbitrary date means that any landlord who started proceedings before 10 November is now arguably in a better position than those who held off and pursued negotiations with their tenant. Surely this cannot be the Minister’s intention. As the British Retail Consortium explained, the more aggressive the landlord, the better the position they are now in on county court and High Court judgments. That is why we have tabled amendment 17, which would remove this arbitrary cut-off date. As a result, a party could apply to court to stay any debt claim that is made by a landlord and relates to protected rent debt, pending a resolution whether by negotiation or arbitration. We see this as an issue of basic fairness. Labour does not believe that landlords or tenants should be punished for in effect doing the right thing and seeking to negotiate a settlement.
I turn now to Labour’s amendments designed to ensure that the new scheme operates effectively. First, on arbitrators and arbitration bodies, arbitral bodies and their members will be absolutely critical to the success of this arbitration scheme. The Government have taken a market-based approach to the running of the arbitration scheme, which will have a list of approved arbitral bodies, rather than a single provider. In Committee, we heard the concerns of stakeholders who wanted to understand what skills and expertise would be required of arbitrators. While some thought that financial and accounting qualifications were critical, others suggested that legal qualifications would be paramount given the complexity of the cases. I would welcome any update on the Department’s discussions with stakeholders and about the approval of suitable arbitral bodies.
As well as ensuring that arbitrators are suitably qualified, it is vital that there is sufficient capacity. The Government’s impact assessment assumes 8,200 cases going to arbitration in its central scenario. While the appointed arbitral bodies will maintain their own lists of arbitrators, in a system where the Secretary of State may appoint several bodies, it is the Secretary of State who ultimately must ensure that there is sufficient capacity. The intention of amendment 13 is to make that an explicit and ongoing duty on the Secretary of State to ensure that the arbitral bodies appointed have sufficient numbers of arbitrators to hear and report on all cases as quickly as possible. If the impact assessment’s estimate is too conservative, our amendment would require the Secretary of State to appoint additional arbitral bodies to work with those bodies already appointed to increase their list of approved arbitrators.
Stakeholders have also made it clear to me how vital it is that there is consistency across the new system in how different arbitrators interpret the legislation and any guidance under it. For example, an arbitrator must dismiss a reference to arbitration where it determines that the tenant’s business is not viable. As such, how arbitrators interpret viability is of central importance.
On the conduct of parties, it is welcome news from stakeholders that the vast majority of landlords and tenants have already reached agreement on their covid rent arrears. The British Retail Consortium estimated in December that 80% to 90% of its members had reached agreement. For the minority of businesses that are yet to reach agreement, the arbitration scheme provides a lifeline for an independent and binding arbitration. However, we believe that the Bill could be improved to further ensure a fairer arbitration process.
Clause 11 requires a reference to arbitration to include a formal proposal for resolving the dispute. The other party may then put forward their own counter-proposal. Both must be supported by supporting evidence. However, a requirement to submit supporting evidence is not the same as full disclosure on an open book basis. As the Property Litigation Association makes clear, parties are not required to provide any evidence which might be adverse to their proposal. This lack of an obligation to make full disclosure prevents the other party from making an informed counter-proposal and, arguably, ultimately the swift resolution of the dispute. That is why our amendment 14 revises clause 11 and requires a formal proposal to be accompanied by all evidence relevant to the proposal, whether helpful to that party or not.
We are pleased to see the Government table Government amendment 4. Although a 50-50 split is fair in most cases, it is right that the arbitrator has the power to change how the arbitration fees are split, particularly if one party has acted unreasonably. However, we believe that the Bill should go further than that as it is vital that tenants and landlords are incentivised to approach the arbitration process fairly and in the spirit of resolution. That is why we have tabled amendment 12, which would provide the arbitrator with the power to make an adverse cost award, where one party has caused the other to incur costs by acting unreasonably. As Sir Paul Morgan said in his written evidence, that would be nothing new. In the case of many tribunals where the general rule is that each party will bear its own costs, the tribunal is typically given such a power.
On swift resolution, the regime is intended to deliver swift resolutions for disputes, yet the Bill does not do everything possible to secure them. While clause 17 requires the arbitrator to make their award within 14 days in a case in which an oral hearing is held, where no oral hearing is held the arbitrator is required to make their award as soon as reasonably practicable. My understanding from debate in Committee is that the likelihood is that most arbitration hearings will not be oral hearings, but on the basis of paperwork. Can the Minister explain the logic here? Why is there no backstop requiring the arbitrator to make their award within a specific timeframe where there is no oral hearing, which, as I say, we understand is expected to be the majority of cases. Labour’s amendment 15 intends to ensure that awards are made within a specific timeframe irrespective of whether there is an oral hearing.
In conclusion, in the current climate viable firms risk going to the wall. We believe that the Government can and should do more. From business rates to energy costs, the Government have let down British businesses and the impacts are now a part of a cumulative rise of cost pressures on businesses. In the context of commercial rent debt, we welcome the relief this Bill offers to commercial tenants facing the risk of eviction, bankruptcy or debt enforcement, and we welcome the prospect of resolution on covid rent arrears offered to landlords and tenants that have not been able to reach agreement. That is why the Opposition have taken a constructive approach to scrutinising this legislation, and I hope that, in recognising the spirit in which our amendments have been tabled, the Minister will respond favourably on the points we have raised today.
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.
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.
“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.
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
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.
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.
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.
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.
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.
Queen’s consent signified.
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,
As we move on to Third Reading I would like to thank the Minister for his engagement with us and for meeting us outside the formal Committee and other stages of the Bill. I also thank the Whips on both sides, the civil servants, the Clerks of the House, all those who gave evidence, Parliamentary Private Secretaries and all colleagues who contributed to proceedings on the Bill.
Labour supports the Bill. Where we believe that it could be further improved we have laid out our arguments, and I hope that such debate will be helpful as the Bill is taken forward in the other place. Labour recognises the need for a fair arbitration system to deal with these difficult rent arrears. No otherwise viable business should face an overwhelming burden from rent arrears incurred as a result of a very difficult time during lockdown and through no fault of their own. Neither should those businesses feel that they are on their own without due arbitration, without a burden-sharing process and without a Government and a Parliament on their side. At the same time, we recognise that commercial landlords also need a clear and predictable mechanism through which to seek to recoup levels of rent arrears fairly, recognising the ability to pay as viable businesses navigate the ups and downs of our economic recovery.
Crucially, the guiding mechanism of any arbitration system must ultimately be fairness and must be in the long-term interests of British businesses and jobs. By ensuring that the arbitration process must aim to preserve viable businesses and do so fairly, while also preserving landlords’ solvency, the Bill offers a balanced arbitration process. As such we support it.
The timing of the Bill, however, was somewhat disappointing, because we called for action over rent debt and wider business costs earlier last summer, ahead of the end of restrictions; indeed, I met with UKHospitality, the British Beauty Council, the Federation of Small Businesses, the Night Time Industries Association and many others. The Minister will have had such meetings too, and heard of the huge ongoing burden that businesses were facing over rent payments; yet it seemed to take the Government months after we, and other stakeholders, made that call to produce the Bill and to set out the arbitration process for rent arrears. In that time, the covid pandemic continued to hit businesses hard, in sometimes predictable and sometimes unpredictable ways as new waves were coming through, particularly those on the frontline of our high streets and communities.
Rent debt remains a heavy burden for those businesses and their commercial landlords. Indeed, the Bill’s impact assessment notes that, according to the Treasury analysis, the total amount of deferred rent liabilities may be at around £9 billion by March 2022. It is likely that businesses and landlords could have been helped by the legislation being introduced a little earlier, but we move forward, and as the Bill moves forward the issues around affordability and accessibility should be further tested. The Minister alluded to that in his speech on Third Reading.
Businesses up and down the country have had a very tough Christmas period, despite the period of October to the new year being called the golden quarter for many hospitality and retail businesses, in which they hope enough revenue can be made, particularly in December, to make up for and steer through the fallow months of January and February. That period has been incredibly difficult this time around. UKHospitality found that the average hospitality venue lost over £10,000 in the weeks leading up to Christmas, with Christmas day takings down 60% compared with those in 2019. A December survey—the period between some of the stages of the Bill—by the Night Time Industries Association found that the outstanding business debt from their members was, on average, around over £200,000 per unit.
Businesses need help with their rent debt, but they will not be able to access it if the cost of arbitration in the Bill is too high. It is vital that the Government continue to listen to the views of Members of this House, and Ministers should ensure that arbitration fees are capped. It is also vital that all viable businesses can access the arbitration process, including those that no longer occupy their premises. I heard what the Minister said in relation to how the courts might interpret that in the context of the intentions behind the Bill, but that issue may well be raised further in the other place. The Government must ensure that there are enough arbitrators, as we have raised, to deal with all cases, and that the arbitration system works consistently and fairly.
We recognise that, as the scheme comes in over March and into April, businesses will also be hit by the hike in national insurance contributions, as well as the ongoing labour shortages, supply chain shortages, rising prices and rising inflation. It is why, in the context of business cost challenges, we continue to believe that the hike in national insurance contributions will be the wrong move at the wrong time. It will be right when viable businesses, we hope, start to recover, and when the arbitration process comes in and they are expected to repay any rent arrears. It is critical that any arbitration system that is created is administered within the context of a wider supportive environment for businesses. I hope that the Minister will keep that under review, and perhaps raise the issue with his Treasury colleagues.
Labour supports the Bill, which addresses a commercial issue on which we have called for action. It provides a fair system for helping landlords and tenants to find a solution to rent arrears under a binding arbitration system. Its measures must be kept under review so that the outcomes that it is intended to achieve are supported, and the process does not otherwise become one that loses the confidence of those it is there to support. On that basis, I wish colleagues in the other place every success in their ongoing scrutiny of the Bill as it moves forward.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Glue Traps (Offences) Bill (Money)
Queen’s recommendation signified.
That, for the purposes of any Act resulting from the Glue Traps (Offences) Bill, it is expedient to authorise the payment out of money provided by Parliament of:
any expenditure incurred under or by virtue of the Act by the Secretary of State or another public authority; and
any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Jo Churchill.)
Glue Traps (Offences) Bill (Ways and Means)
That, for the purposes of any Act resulting from the Glue Traps (Offences) Bill, it is expedient to authorise the charging of fees and other charges under the Act.—(Jo Churchill.)