Thursday 10 February 2022
Commercial Rent (Coronavirus) Bill
Relevant document: 19th Report from the Delegated Powers Committee
My Lords, Members are encouraged to leave some distance between themselves and others and to wear a face covering when not speaking. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clauses 1 to 3 agreed.
Clause 4: “Adversely affected by coronavirus”
1: Clause 4, page 3, line 37, leave out “premises, or parts of premises,” and insert “businesses or premises of a specified description, or parts of businesses or premises”.
Member’s explanatory statement
The amendment would ensure that subsection (3) applies to requirements for the closure of businesses or parts of businesses as well as those for the closure of premises or parts of premises.
My Lords, it is a pleasure to debate this important Bill in Grand Committee. I would first like to speak to a group of technical amendments tabled in my name, starting with Amendment 1 to Clause 4. This clause is vital to the Bill. It sets out what is meant by a business being “adversely affected by coronavirus”, with certain rent debts under such businesses’ tenancies being in scope for arbitration. Essentially, businesses or premises that were required by regulations to close during a specified period meet the test. Subsection (3) provides important clarity that a requirement to close at particular times is a closure requirement. Amendment 1 ensures that this provision applies in relation to closure of either premises or businesses, or parts of premises or businesses. I am sure noble Lords will agree that this minor amendment produces important clarification.
Turning to Amendment 4, arbitration under the Bill will provide a legally binding solution to unpaid commercial rent from the pandemic. This is important to give certainty and enable parties to return to normal contractual relations. If a tenant is awarded relief, such as a reduction in the protected rent they must pay, they should not have liability for the rest of the original debt. If a guarantor or former tenant ultimately pays the protected rent following an arbitral award, they should be required to pay only the sum required by the award. This should be the case whether, technically, a guarantee or an indemnity has been provided. Amendment 4 expressly sets out those effects of an award. This is intended to give clarity, as requested in a comment in written evidence in the other place. I am grateful to all those who took the time to give their feedback on the technicalities of the Bill. I am pleased to propose this additional clarity through Amendment 4.
Finally, I shall address Amendments 11 and 12. Schedule 2 contains a provision specifying that the Bill’s moratorium and related provisions on debt claims apply both to tenants and anyone who guarantees the tenant’s obligation. I am sure noble Lords will agree that this is important to ensure that the tenant has a genuine opportunity to access arbitration. Amendment 11 ensures that this provision’s protection applies to former tenants who may be liable for unpaid rent under a business tenancy, whether or not they have entered into an authorised guarantee agreement. Amendment 11 also clarifies that the provision applies whether, technically, a guarantee or indemnity has been provided. This amendment addresses a helpful comment made in written evidence in the other place.
Amendment 12 has the same effect as Amendment 11, but applies to Schedule 3’s moratorium and related provisions on winding-up petitions, bankruptcy orders and petitions.
I hope noble Lords will agree that these technical amendments provide useful clarity. I commend them to the Committee and I beg to move.
My Lords, far be it from me to delay any part of this important Bill, but I would like to be clear about the Minister’s insertion of “businesses or premises”. There does not necessarily seem to be a direct alignment between the two terms. For instance, is the closure of the business inescapably the product of a prohibition, as opposed to something that is advisory? I refer back to the great debate over whether something was guidance or mandatory. It seems to me that we could be looking at businesses with subsidiary operations and so on. If we are not careful, something that affects one part of a business but not the particular part we are talking about, namely the rent on particular premises, would not necessarily align. I would be grateful if the Minister could clarify what is intended there.
My Lords, fools rush in where angels fear to tread—I shall try to speak briefly. I welcome the fact that the Minister has been flexible and responded to points raised in the other House. Government Amendment 4 is a really good thing, but I have the same question: is this guidance or a mandatory process for the arbitrators? My understanding is that, if a tenant is able to reach a settlement through this process, that tenant no longer carries the stain of the unpaid element of the arbitration process. That therefore means that this would not stand against their credit rating and I wonder whether the Government have considered how this might not filter through into the credit rating system. As I am sure the Minister knows, the credit rating system tends to make life very difficult if you get on the wrong side of it. Some clarity on that would be really helpful.
My Lords, I also extend our thanks to the Minister for his courtesy, as always, and for picking up these—as he made clear—technical issues. We have received numerous representations on the Bill from stakeholders. I was pleased to hear the Government picking up some of the very detailed concerns about liabilities. We recognise Amendments 11 and 12 as positive, reflecting the concerns raised by stakeholders. I shall be interested in hearing the clarifications from the Minister on the points raised by the noble Earl, Lord Lytton, and the noble Lord, Lord Fox, particularly on definitions. The complexity of these areas makes us all try to look at the unintended consequences that could flow from making one change. Sadly, we know the pressures that so many of these businesses and tenants are under and the potential risk to their future liability.
With apologies to the Minister, I forgot to complete what I was going to ask with respect to government Amendments 11 and 12. Would they in any way change the relationship with former tenants who have unpaid rent when it comes to the process of recovering that rent? That was not clear to me from what the Minister said, probably because it was not the intention of what he was describing. Can he clarify that they would not in any way downgrade the landlord’s ability to pursue unpaid debt from a former tenant?
My Lords, I thank noble Lords for those points. I will answer them as best as I can because there are some technical issues underlying this. I hope noble Lords will not mind if I have to write in amplification of the answers I give.
First, on the point made by the noble Earl, Lord Lytton, the coronavirus regulations imposed mandated closure requirements on either businesses or premises. Sometimes the run two together but they do not necessarily do so. The Bill applies to all such cases where there was a requirement in the coronavirus legislation so one has to look back to that legislation to understand the difference between businesses and premises in it. However, I will write to clarify that further for the noble Earl.
On the question asked by the noble Lord, Lord Fox, the intention is that the arbitral award, which is binding, will substitute itself for the debt that previously existed. On that basis, it should not apply to the credit rating of the person concerned. Having said that, I guess we all have experience, either directly or through colleagues, of where that perhaps has not flowed through to the outcome as it should have done—in which case, the answer, I am sure, is that one must take it up with a credit rating agency. However, if that were to happen, it would be an error that would then have to be corrected.
In the likely event that the Bill becomes law, might there be some way for the department to inform the credit rating agencies about this process? The last thing a business needs if it is trying to get back up and running is to find that its credit has been shut down. Some pre-emptive action with the key credit rating agencies might help to alleviate the situation.
I thank the noble Lord for that suggestion; I will make sure that we look at it and take it up. Again, it may even be something that we can mention in the guidance as a point of information for those affected.
On the noble Lord’s further point, when a former tenant is liable for the current tenant’s obligations, the Bill prevents landlords exercising relevant remedies against them in respect of protected debt. This is during the Bill’s temporary moratorium period, which is considered as the period during which the arbitration system is open to applications or an arbitration is ongoing. That may not have answered the noble Lord’s questions fully, but I will amplify my answer in correspondence with him.
Amendment 1 agreed.
Clause 4, as amended, agreed.
Clauses 5 and 6 agreed.
Clause 7: Approval of arbitration bodies
2: Clause 7, page 5, line 19, at end insert—
“(2A) The Secretary of State must ensure that bodies approved under subsection (1) have adequate resources and sufficient numbers of arbitrators as are (whether alone or as a member of a panel of arbitrators) required to conduct arbitrations under this Part.”Member’s explanatory statement
This probing amendment would require the Secretary of State to ensure that the approved arbitration bodies collectively have sufficient capacity, and resourcing, to hear all arbitrations under this Part.
I am grateful for the contribution that the noble Lord, Lord Fox, has made in this grouping and look forward to the discussions that we will have, recognising the additional amendment in this group.
I again thank the Minister for the attention to detail in representing the representations from stakeholders —importantly, from both tenants and landlords. I thank him, too, for his letter responding to the concerns raised by noble Lords at Second Reading. I just want to make the point about understanding the real pressure that businesses, tenants and landlords are under at the moment. It has been an incredibly difficult winter for many businesses, as we know and, of course, we are in a situation where we face ongoing pressures from the national insurance rise, energy costs and inflationary pressures. It is a time of great uncertainty for many people affected by the Bill before us. We welcome the moves forward as outlined in the Bill, recognising the complexity and the absolute need to get the detail right, but also the time pressures and the fact that the clock has been ticking for many businesses for some time now.
Of course, running through all that, it is essential that stakeholders have confidence in the system. The reason for Amendment 2 is the need to ensure absolutely that bodies under subsection (1) have adequate resources and sufficient numbers of arbitrators. Through this amendment, we seek reassurance with regard to immediate capacity, but I would also like to ask about evidence and what understanding there is of how much work has been done on resourcing the needs and future demands on services for all those involved. It is essential that everyone feels that they have proper access to a fair hearing. I should like the assurance that all due consideration has been given to the proposed nature of the hearings.
I understand that the assumption is that the hearings will be in public and that oral hearings may be desired by the parties involved. Could that have an undue impact on costs? Would they add to the capacity requirements of the arbitrators? Am I right to understand that a document-only approach would allow for a more efficient process? Is that the understanding behind the direction of travel, and would this be seen to keep costs and time lower?
We understand from our discussions at Second Reading that many cases have now moved to be settled. Would we be right in assuming that the outstanding ones may well be more complex, which explains why they are moving forward to seeking arbitration, as laid out? My question remains: has a full assessment been undertaken with regard to the demands of the services of arbitrators? I am sure that the noble Lord, Lord Fox, will expand on the issues around accessibility to the services.
Amendment 3 would increase the transparency of the arbitrator’s decision, which we have emphasised in the debates in the other place—and I refer to the discussions that were held there.
I regard Amendment 5 as positive and, again, is one that we tabled in the other place. We are concerned that the arbitration fees could be the final cost to push landlords and businesses over the edge. Therefore, we consider that the Secretary of State should ensure that fees are capped. As I said at the outset, this is a time when costs are escalating in so many different areas; we would like the absolute assurance that this area has been considered and controlled.
Can we also be assured that arbitration fees and expenses will be proportionate to the arrears that have caused the dispute? High arbitration costs will have a huge impact on businesses that are doing everything they can to emerge from the pressures that they have been facing. The fact that they need to go to arbitration highlights those pressures. Will the Minister expand on the powers that the Secretary of State will have to make regulations specifying limits on the fees and expenses of arbitrators? What circumstances would lead to the Secretary of State becoming involved, and how will affordability be judged?
With regard to Amendment 7, also in my name, can the Minister say more about what, in his view, constitute viable and unviable businesses? Further, could he expand on what guidance will be provided to arbitrators? Do we know how much flexibility they will have? We all recognise the difficulty of defining what constitutes viability or affordability, but this is such an important area that we need to push further to make sure that we have a clearer definition. That is why we seek more answers in this area and to add more depth to some of our previous discussions.
The noble Lord, Lord Fox, has tabled Amendment 7A, and I shall listen with interest—sorry, this is a double use of the word—to the cap on interest. I am interested in the interest on the interest. With those points, I beg to move.
My Lords, I shall speak to Amendments 3, 5 and 7A in my name, and in support of the other amendments in the group, most of which I countersigned and one that I, mysteriously, did not. I am not sure why, because I agree with it completely. It certainly does not have any lower rating because I failed to sign it.
My three amendments are relatively self-explanatory and I shall be brief, but the Minister should not mistake that brevity for the idea that I do not think they are important. I can speak for longer if necessary. Amendment 3 would ensure that arbitration decisions are easily accessible. The basis for that is that, although we do not have long to get through this process, building up a body of case law, or case decision-making, will be important for consistency. What worries me most is complete inconsistency in how these rulings are made. I think we will come to the last point that the noble Baroness, Lady Blake, made about viability, which is where inconsistency will be most a problem. One starting point is to publish fully and accessibly. It would be better if the Government had their own website which scraped them up and put them all in one place so that people would not have to go to various places but, at the very least, they should be easily available somewhere.
Amendment 5, which has some crossover with parts of Amendment 6, requires the Secretary of State to make regulations specifying limits on arbitration fees. The Minister will see that the word “may” is employed, and I am sure he will tell us that this is a legislative trope and that this is how it is done. That is what I expect. Therefore, it will be sufficient if the Minister stands up at the Dispatch Box and says that such regulation will be brought forward at the earliest opportunity and the word “may” remains in the legislation. That would clearly clarify the Government’s intention as to whether this process will happen.
I apologise for the late arrival of Amendment 7A, and I really appreciate the help of the Public Bill Office and others in drafting it so that it is in scope of the Bill. The aim of this amendment is to put a cap on the level of interest that can be baked into the arbitration. This is important because otherwise it will be a lever used in the negotiation. In other words, the landlord will say, “Yes, I’ll do this deal but I expect interest of X or Y”, and clearly that interest level may not be to the advantage of the tenant. Therefore, putting this in removes that lever from the arbitration process. It knowingly and deliberately moves it so that the negotiation is on different ground. The Minister will have noted that I often speak up against secondary legislation—indeed, we have some coming later—but in this case it seems to me that Amendments 5 and 7A are good examples of what secondary legislation was designed for.
I turn briefly to the amendments in the name of the noble Baroness, Lady Blake. Amendment 2 is a sensible measure to ensure that there are sufficient arbitrators. The Minister has said on occasion that there are sufficient, but to some extent he is relying on the word of the organisations concerned. I think it unlikely that they would say, “No, Minister, we can’t do it”. This amendment forces that assurance process a little harder.
Amendment 6 further supports Amendments 5 and 2, in my view. I thank the Minister for his letter. One element of that was to set out the distribution of potential cases. The question I have is whether the availability matches the potential cases. For example, it seems that there is a concentration of potential cases in the south-east, and it seems likely to me that there is probably a concentration of resources for arbitration in the south-east. But what of the towns where the commercial infrastructure has dwindled and where there are not the people who fit the arbitration photofit that the Minister described? How has the Minister ascertained that those towns, cities and villages, which will need arbitration just as much as the bigger places, will have the supply they need? If they do not have the supply locally, on their doorstep, how will that be supplied otherwise? It is not just whether they are sufficient in the country but whether the footprint of those arbitrators matches the expected need.
Then we come to Amendment 7, the one I did not sign, which is strange because I think it is really important. The questions I asked in the debate before Second Reading were, “What is viability?” and “On what forward data is viability assessed?”. One percentage point on expected interest rates, one or two percentage points different on expected inflation and one percentage point up or down on the RPI are the difference between life and death for a business. When the arbitrator sits down at looks at viability, from where is that arbitrator going to get that data and how can we ensure that the data is consistent? The Treasury and the Bank of England often get it wrong when it comes to forecasting data—with all due respect to the Deputy Chairman’s son, who I believe has the job of making some of that data. The point is that we have to use something. Is it up to the arbitrator to decide which projection for RPI, which interest rate data and which inflation data are to be used? This is the difference.
What does viability mean? Is it wiping your face in the colloquial, is it a 5% return on capital employed or what? What do we mean? How do we make sure that businesses are not shut down that in other places are determined viable? This is a difficult question to answer but it is a crucial point, on which the effectiveness of this legislation will turn.
My Lords, I shall make a few general comments about this group, which I certainly relate to. The Minister will doubtless have seen the item I sent in the past day or so from the Property Litigation Association, which I copied to a number of other noble Lords, about its concerns over the geometry of the arbitration process. With regard to the number of arbitrations, a matter raised by the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, the final quantum of those willing to participate will not be known until the Bill and any regulations have been finalised, so willingness to participate may well depend on what is set out in them, what happens about any caps and proportionality relating to costs in the arbitration.
On the costs in the arbitration, my limited experience suggests that the process is capable of being gamed with bad behaviours referred to in an email I had from the property industry and brinkmanship as a predetermined tactic. Given that arbitration is not an inherently cheap process in such circumstances, I wonder what safeguards there are against, for instance, a bully-boy multiple having a go at a series of small landlords, a not unheard of situation. Unfortunately, the British Property Federation, which represents larger landlords, does not have data on what the impact is. I will be very interested to know whether there is any data.
I have concerns about arbitrator discretion. As I understand it, under the provisions of Arbitration Act 1996 the parameters of the arbitrator’s decision-making function are that he has to decide on one or other of the two cases before him. He is not in an inquisitorial position to try to fillet out bits of one and insert them in bits of the other, so when it is a question of what interest rate will be applied, it will be a matter of what is presented to him or her as arbitrator. If there is to be some change in this non-inquisitorial function of arbitrators—I am not suggesting that there could or should be—I can see that, if we are talking about the interests of justice rather than the much vaunted justice of Solomon, we might wish to review what is happening.
On the question of arbitration awards, again, my understanding is that these are normally private, not public, occasions. To the extent that it is proposed that the outcomes of those should be relaxed, I should like to know what revised terms, guidance or direction will follow. That might well have an impact—going back to the first point I made—on those who are already trained arbitrators who might wish to participate in this scheme and may regard the matter as a sufficiently aberrant novelty not to want to participate. I see this matter as a somewhat circular approach and would very much like clarification because I want the Bill to work in practice.
I hope it is order for me to ask if the noble Lord agrees with me that the so-called bully-boy tenants that the Minister described are going about their bullying within the current system? How much more does this system facilitate their ability to bully or otherwise than the current system, given that we have seen high-street multiples hold their landlords to ransom without this legislation? Why would this legislation make it any easier for them to do that?
My Lords, the noble Lord asked a pertinent question and the short answer goes back to my earlier intervention. The impact on business and on premises are two separate things. Those are being coalesced into what has happened in terms of non-payment of rent and a build-up of arrears. All I would say is that it is just another factor that adds into a range of factors that he rightly points out are already in play. It adds to the complexity.
Perhaps I may address the group on some general points that have been touched on already. I am concerned about whether we in the surveyors’ industry, or wherever the other arbitrators may be sourced from, will be able to provide sufficient numbers of arbitrators. There are mixed opinions on the anticipated number of cases requiring arbitration and there will be a significant difference in their characteristics.
I know that the Bill sets out that the Government will ensure that there will be adequate arbitrators but what will happen if there are not? Arbitrators cannot be trained overnight or sourced quickly. There could be a logjam, which would also spill over into proposals to review the progress of the system.
I turn from Amendment 2 to Amendments 6 and 7. I echo the comments of the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, about cost and proportionate fees for arbitration. One cannot compare an arbitration on 250,000 square feet in Canary Wharf with one on a small shop in the Balls Pond Road. It is a different universe and will require different skills. The sums of money involved are hugely different. The fees must be proportionate and, in particular, must not penalise the small trader or small landlord. It might involve a private landlord with a single shop; we have heard about the multiple traders bullying landlords and the issue would apply there, too. I just wanted to make those two points.
Again, I thank noble Lords for their contributions on this group. I thank the noble Baroness, Lady Blake, and the noble Lord, Lord Fox, for their attention to the important issues raised through their amendments. I am grateful for the constructive debate we have had on this, complicated though it is. I have to say to start with that I very much agree with the noble Baroness about the extreme pressure that businesses have been under during this very worrying time. I hope that this Bill will be a small contribution, at least for some, to easing that worry.
Turning first to Amendment 2, I thank the noble Baroness and noble Lords for their consideration of the issue of ensuring adequate arbitrator capacity and administrative support by arbitration bodies. These are key to achieving our aim for disputes to be resolved quickly. As I said before, we have thought it right to adopt a market-based policy approach. This means that approved arbitration bodies, which have expertise in running schemes like this and mounting these things—they will not have run an identical scheme to this one but they will have run similar schemes in the past because it is, in a sense, their core business—will manage their internal capacity processes to perform their functions in the Bill to the required standard.
I believe that this approach of empowering arbitration bodies to manage their internal workflows is the optimal way to ensure that there is enough capacity in the system to deal with the caseload. Not only have my officials been in deep contact with the arbitration bodies about this but I myself held a round table with some of them earlier in the week. I probed them very hard on these matters and, I must say, I got replies that satisfied me as to their ability to cope with this and put the systems in place. In a sense, their very reputation as arbitral bodies depends on them being able to do things like this.
Of course, adopting a more market-based approach does not mean that we are not taking action to engage with the issues of arbitrator capacity and arbitration body resource capability. As I said, we have been engaging extensively and on an ongoing basis with arbitration bodies in relation to these issues, and we will continue to do so. If tweaks have to be made, we will certainly make them.
Let me give a bit more colour to that. The application process for bodies to become approved contains a question on the number of arbitrators listed with the body that would be potentially suitable for the scheme. This is designed to ensure that the arbitration bodies that are approved will be able to list, and therefore appoint, a sufficient number of arbitrators. In any event, simply looking at the number of arbitrators that arbitration bodies can list underrepresents the capacity in the system because it disregards the fact that an arbitrator will be able to take on more than one case at a time.
The noble Lord, Lord Fox, asked, quite properly, about the geographical dispersion of arbitrators. It is very much our intention in the Bill that this is a documents-based process; to that extent, geographical location is less relevant. Also, our belief is that a lot of this will be conducted online by the arbitrators, so the things in this Bill will not necessarily turn on whether there is a local arbitrator on this.
I thank the Minister for his answer and accept that position, but I think he would also agree that, in order to assess the viability of a particular business correctly, local knowledge is quite helpful. The idea that, at its extreme, you are sat in a village in Herefordshire conversing with someone in Westminster and doing the process, could create confusion.
I thank the noble Lord for that intervention. Of course, in the cases put before the arbitrator, one would expect either the tenant or the landlord themselves to refer to those local issues, but it is of course absolutely open to the arbitrator to call for more information or evidence to deal with that local point. Indeed, it may well be sensible in many cases to appoint an arbitrator who has local knowledge, but I think that the system will adjust and do that as necessary.
The noble Baroness, Lady Blake, asked whether the outstanding cases—we are down to a number in the low thousands now—are, by definition, likely to be the more difficult ones. Some of them are likely to be more difficult but, frankly, quite a proportion of them will involve people who have just been ignoring this topic, hoping that it will go away and something will turn up. Obviously there is something in the noble Baroness’s point, but there is a variety of factors that may be the reason why people have not yet come forward to settle by themselves. Of course, as I have said previously, it is very much our wish that people settle this themselves when they can.
I was asked about viability—and I will come back to it again later. It is difficult to be overly prescriptive about viability. The Bill deliberately does not define viability specifically because—this comes back to the geographical point from the noble Lord, Lord Fox—arbitrators need to make the assessment in the context of each individual business’s circumstances, especially given the variety of businesses that may use the scheme. It is essential that arbitrators do that, and have the flexibility to do that, to achieve a fair outcome. We will produce more statutory guidance for arbitrators on this, but I have confidence because, in a sense, it is their whole business to be able to arbitrate matters—that is, to weigh up the necessary factors and come to a sensible conclusion.
I appreciate that, and I am pleased that there will be more statutory guidance. It seems to me that the sources of data should not be the topic under discussion during the arbitration process. Can the Minister give us some sense of the basis on which people are making decisions, while at the same time accepting my point that there are local variations in markets and that this element would take out some aspects of what could be, in the words of the noble Earl, Lord Lytton, gamed?
I thank the noble Lord for that intervention. From talking to some of the arbitration bodies, I know that the way they operate is that, when a case like this comes to a body for it to decide on the arbitrator, normally a list of arbitrators is put in front of the parties for them to choose. This is a thoughtful process, as it were. The list of names that the arbitral bodies put before the parties to choose an arbitrator is done rationally. Frankly, one would expect that, if there are locally based arbitrators to do this, they will be the people on the list; the parties may then choose them. I cannot give the noble Lord an absolute guarantee in relation to that but it seems to me that, sensibly, this will be how the system should, and will, operate.
Turning to Amendment 3, I thank the noble Lord, Lord Fox, for his interest in the publication of awards. We absolutely want to ensure that the public can easily access arbitral awards issued under this scheme. That is why Clause 18 already requires arbitrators to publish an award made, together with the reasons for making it. I am sure that, as this scheme rolls out, if we find that this publicity is not reaching the people it needs to, we will take steps to ensure that it does.
We do not believe it is necessary to require approved arbitration bodies to publish decisions as well, although some may well choose to. In addition, we envisage that as part of its function of overseeing an arbitration, an approved arbitration body would ensure that the award is published as required. Frankly, the convenient way to do that would be on the website of the arbitral body. We are in ongoing discussions with arbitration bodies regarding how to ensure that awards are published in an accessible manner for landlords and tenants who are considering making a reference to arbitration.
I think we are in absolutely the same place on the need for this. I hope I have persuaded the noble Lord that this amendment is not necessary and I request that he does not press it.
Turning to Amendment 5, I thank the noble Baroness, Lady Blake, the noble Lord, Lord Fox, and other noble Lords who have spoken for their consideration of the important issue of arbitration fees and the Secretary of State’s power to cap those fees. I assure your Lordships that we also want to ensure that all those who need to access the scheme can do so. That is why, for example, when arbitration bodies seek approval we are specifically asking them what they intend to do to make sure the scheme is affordable for SMEs.
As I have mentioned, the Bill adopts a market-based approach. Approved arbitration bodies, which have expertise in running and costing similar schemes, will have the function of setting fees. It has been made clear that while fees should be set at a level that incentivises arbitrators to act, it is important that the scheme is affordable for all those who need to access it. Capping fees prematurely could reduce the number of arbitrators able to act and in a sense would compound the problem that we are trying to solve. A cap should therefore be imposed only where there is evidence that it is needed. There is presently no such evidence but, if it were to emerge, the Secretary of State is prepared to exercise the power to cap fees.
Just to add a little substance to the Minister’s point about the proportionality of fees, I think it worth mentioning that in order to present their case to the arbitrator, SMEs in particular will be engaging professionals who charge fees—accountants, surveyors and possibly many others. All this presses upon the delicate P&L of SMEs and, I fear, will have the effect of reducing the numbers that seek arbitration simply because they cannot afford it. That is a supplementary point to the cost of the arbitration. I am just pointing out that there are a lot of ancillary fees.
I thank the noble Lord for that intervention. I understand the point that he is making. Having said that, I think it is right to see how this develops in practice as it moves forward. The Secretary of State has the power to cap fees, but to do that at the beginning could have the perverse effect of worsening the situation by meaning that there will be fewer arbitrators coming forward to do this.
Perhaps I may clarify a point I made earlier about the parties choosing an arbitrator. Formally, of course, the arbitrator is chosen by the arbitral bodies but, from discussion with those bodies, it is clear that they work through with the parties who might be the most appropriate arbitrator to appoint in a certain case.
We do not intend to produce guidelines specifying the factors to be considered in relation to the use of the power to cap fees, but I say categorically that the affordability of the scheme and whether arbitrators are sufficiently incentivised to act will be considered with any other relevant factors, if ever the Secretary of State decides that the power has to be exercised. In conclusion on that amendment, I know that, like us, the noble Baroness and the noble Lords who have spoken are keen to ensure that there are enough arbitrators to administer the scheme, and I therefore ask for Amendment 2 to be withdrawn.
On Amendment 6, which also concerns the Secretary of State’s powers to cap arbitration fees, I am again grateful to the noble Baroness and the noble Lord for emphasising the point about the affordability and accessibility of the scheme, should the power to cap fees be exercised. As I have said before, I agree that these are crucial issues. If the Secretary of State were to exercise the power to cap fees, I can reassure the noble Baroness and the noble Lord that the ability of landlords and tenants to access the scheme and the affordability of arbitration fees would of course be considered, along with other relevant factors such as whether arbitrators are sufficiently incentivised to take on cases. I reiterate that the Government will continue to work with approved arbitration bodies to monitor arbitration fees as well as arbitrator capacity. As I said, the Secretary of State will use these delegated powers only if it seems the right thing to do, taking into account the factors at the time.
The Bill gives arbitration bodies that are experienced at costing such schemes the power to set their own fee levels according to market demand. These fees will be publicised, and it will be possible to compare the fees of one arbitral body with those of another. We will absolutely monitor this and make sure that it is balanced with the other considerations to which I have referred. In conclusion, we will continue to work with approved arbitration bodies to monitor arbitration fees, as well as arbitrator capacity. Therefore, I hope that the noble Baroness and the noble Lord are reassured, and I request that Amendment 6 not be pressed.
On Amendment 7, the noble Baroness has proposed an amendment that would require the Secretary of State to issue guidance to arbitrators on two specific points: how the viability of the tenant’s business should be assessed and over what timescale. I agree that these issues are important, but I hope to persuade her that the amendment is unnecessary.
I hope she would agree that a very large variety of businesses of different sizes in a diverse range of business sectors may use the arbitration process provided in the Bill. In light of that, it is clear that arbitrators need the flexibility to make the assessment of viability against the context in which the individual business operates, considering the different kinds of evidence that may be available. We have to be alive to the danger of being too prescriptive, as a one-size-fits-all approach could lead to unfair arbitration outcomes.
That said, the Government are providing assistance to arbitrators who have to make these assessments. There is a list of factors that the arbitrator must consider when assessing viability in Clause 16. Annexe B of the revised code of practice sets out a detailed non-exhaustive list of the types of evidence that tenants, landlords and arbitrators should consider when assessing the viability of a tenant’s business and the impact of any relief on protected rent debt on the landlord’s solvency.
We are having ongoing discussions with arbitration bodies and landlord and tenant representatives in relation to producing statutory guidance. It is making good progress, and I can reassure the noble Baroness that the guidance will provide more information about viability. It is for those reasons that I hope that she will agree that the amendment is unnecessary and I request her not to press it.
I now move on to Amendment 7A, which proposes a new clause after Clause 26. I thank the noble Lord, Lord Fox, for his comments. We must recognise that in addition to rent arrears a tenant may have accumulated during the pandemic, interest may also apply to that debt. The Bill’s core purpose in this area is to protect businesses, which, if they did not have to pay their rent debt in full, would otherwise be viable.
If, despite being granted relief in respect of the rent itself, businesses necessarily had to meet all interest charged on unpaid rent under high contractual rates, they may still be forced under. That would subvert the whole purpose of the Bill. I am sure that this is the point about which the noble Lord, Lord Fox, is concerned. That is why I am pleased to reassure him that in the context of the Bill the definition of rent includes interest. Rent is defined in the Bill as the sum for the use of the premises, the service charge payable to the landlord, including payment towards an insurance premium, and any interest on an unpaid amount of those charges. Including interest within the Bill’s definition of rent will allow arbitrators to consider whether any relief should be granted in respect of any interest payable.
I further reassure the noble Lord, Lord Fox, that the Bill’s temporary moratorium provisions protect tenants from actions such as forfeiture or debt claims in relation to unpaid interest on unpaid rent and service charges for the projected periods while arbitration is ongoing. Again, that issue arises because of the inclusion of interest within the definition of rent. Having said that, I note that the Bill seeks to respect the contractual terms of the lease. It is not intended to impose different interest rates, but the arbitrator can look at the interest rate when considering the overall position.
I hope that I have reassured noble Lords on the Bill’s measures regarding interest on protected rent debt. I do not believe that further intervention is necessary and therefore I ask the noble Lord, Lord Fox, not to move his amendment.
Perhaps I may pick up on a couple of points that the Minister made. It appears that he envisages that the arbitrator will have to use quite a lot of his own discretion. In my way of thinking, that does not fall under the Arbitration Act 1996 and is, in fact, an adjudication process of a rather different nature. He is probably not in a position to answer that right now, and if he would write to me, that would be fine. However, I worry that the way in which the Government see arbitration here is irregular in terms of what most people would understand as the strictures of arbitration.
My Lords, I thank the noble Earl for his intervention. The best answer I can give is that it has been fully discussed with the arbitral bodies whether this is something that they feel the arbitrators they are responsible for can do. I have had complete reassurance on this point, but I will consider it again and write to the noble Earl.
I conclude by thanking the Minister for his very full responses to the concerns raised in this group of amendments. It is fair to say there is still some concern that we will probably pursue at the next stages. I wonder whether the Minister can write to let me know when the statutory guidance, particularly on viability, is likely to be made public. Again, we are in difficulty when we have not had sight of the guidance around the Bill. I do not want to open old wounds again, but it is a recurring theme that we have to deal with. Any clarity on that would be helpful.
I am grateful for the responses but, without going through all the detail again, in taking this work forward it is essential that all the parties have confidence in what is being put before them. The issues raised today are consistency, clarity, transparency and fairness. We must make sure that whatever comes through is deemed to have all those principles or qualities, wherever in the country you happen to be. I admit that I share the concerns of the noble Lord, Lord Fox, about local knowledge. Looking at the statistics, it is clear that certain parts of the country have been affected more than others. The stress that those areas are feeling is also not equally shared in relation to some of the big issues we have coming forward.
It may be helpful if I say that I understand the noble Baroness’s point about guidance. It is very much our intention to publish the draft guidance before Report. I will keep the noble Baroness and noble Lords in touch with that. I understand why that question has been asked.
I thank the Minister for that intervention. We will look forward with interest to the guidance coming through. It is essential that it comes before Report, if I am allowed to say that. With those comments, and looking forward to further clarification, I beg leave to withdraw the amendment.
Amendment 2 withdrawn.
Clause 7 agreed.
Clause 8: Functions of approved arbitration bodies
Amendment 3 not moved.
Clause 8 agreed.
Clauses 9 to 13 agreed.
Clause 14: Arbitrator’s award on the matter of relief from payment
4: Clause 14, page 10, line 11, at end insert—
“(8A) An award giving the tenant relief from payment of a protected rent debt is to be taken as altering the effect of the terms of tenancy in relation to the protected rent constituting the debt. (8B) Subsection (8A) means, in particular, that—(a) the tenant is not to be regarded as in breach of covenant by virtue of—(i) non-payment of an amount written off by the award, or(ii) failure to pay an amount payable under the terms of the award before it falls due under those terms;(b) a guarantor of the tenant’s obligation to pay rent, or a former tenant who is otherwise liable for a failure by the tenant to pay rent, is not liable in respect of anything mentioned in paragraph (a)(i) or (ii);(c) a person other than the tenant who is liable for the payment of rent on an indemnity basis is not liable—(i) to pay any unpaid protected rent written off by the award, or(ii) to pay an amount payable under the terms of the award before it falls due under those terms;(d) any amount payable under the terms of the award is to be treated for the purposes of the tenancy as rent payable under the tenancy.”Member’s explanatory statement
The amendment would clarify that an arbitrator’s award of relief from payment of protected rent alters the effect of tenancy terms as to the payment of that rent. This means that any other person liable to pay the protected rent is only liable in relation to payments required under the award.
Amendment 4 agreed.
Clause 14, as amended, agreed.
Clauses 15 to 18 agreed.
Clause 19: Arbitration fees and expenses
Amendments 5 and 6 not moved.
Clause 19 agreed.
Clauses 20 agreed.
Clause 21: Guidance
Amendment 7 not moved.
Clause 21 agreed.
Clauses 22 to 26 agreed.
Amendment 7A not moved.
Clause 27: Power to apply Act in relation to future periods of coronavirus control
8: Clause 27, page 15, line 15, at end insert “adversely”
Member’s explanatory statement
The amendment would bring the language into line with the corresponding wording in Clause 4.
My Lords, in moving Amendment 8, I am pleased to speak also to Amendments 9 to Clause 27. Both are in my name. Clause 27 provides a power to apply provisions of the Bill again in order to act swiftly in the event of another wave of coronavirus requiring further mandated closures.
Amendment 9 would ensure that the power can be used for mandated closure after the protected period in the Bill, whether before or after the Bill is passed, and whether or not the closure requirement has ended when regulations are made. Amendments 8 and 9 also clarify the meaning of a closure requirement, and more closely align the drafting with corresponding provisions of Clause 4. We have seen that the Covid landscape can change very quickly; Amendments 8 and 9 are therefore to ensure the power is clear and robust for any new waves. I beg to move.
Amendment 8 agreed.
9: Clause 27, page 15, line 17, leave out subsection (2) and insert—
“(2) A business tenancy is adversely affected by a closure requirement for the purposes of subsection (1) if—(a) the whole or part of a business carried on at or from the premises comprised in the tenancy, or(b) the whole or part of those premises,is of a description subject to a closure requirement imposed at any time after 7 August 2021.(2A) In this section “closure requirement” means a requirement imposed by regulations as a public health response to coronavirus and expressed as an obligation—(a) to close businesses, or parts of businesses, of a specified description, or(b) to close premises, or parts of premises, of a specified description.(2B) In subsection (2A) “coronavirus” means severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).(2C) The power under this section is exercisable whether or not the closure requirement remains in force when the regulations are made.(2D) Subsections (3) to (5) of section 4 apply for purposes of this section as they apply for purposes of section 4.”Member’s explanatory statement
The amendment would clarify the meaning of terms used in Clause 27 and bring its drafting more in line with corresponding provisions of Clause 4. It would also ensure that the Clause 27 power is exercisable in relation to new closure requirements imposed before the Bill is enacted as well as any imposed subsequently.
Amendment 9 agreed.
Debate on whether Clause 27 should be part of the Bill.
My Lords, Clause 27 would establish the Henry VIII power, which has drawn the ire of the Delegated Powers and Regulatory Reform Committee—so this speech will come as no surprise to the Minister or, indeed, the noble Baroness, Lady Bloomfield, who heard a slightly different version of it earlier this week. Thereby hangs a tale, because this is a consistent practice of the Government in legislating not just for the present but putting in place measures whereby the Bill cannot just be continued or rolled over but rolled over and substantially changed. In this case, Clause 27 gives Ministers very broad discretion to change how the Bill would work in future periods of coronavirus control. It would allow changes of a kind that would give rise to serious policy issues and this ought not to be a matter for secondary legislation.
Turning to the detail, the Bill applies to business closures that took place in two specific periods—11 March 2020 to 18 July 2021, for businesses in England, and 21 March 2020 to 7 August 2021 for businesses in Wales. However, Clause 27 gives the Secretary of State powers to make regulations that allow the Bill to apply to future periods of coronavirus control.
As the Minister said when speaking to the previous group, we do not know what is coming down the line and there is some element of sense in keeping options open. As we know, regulations are subject to the affirmative procedure. However, as the Delegated Powers and Regulatory Reform Committee pointed out and highlighted, there is much more than just the power to provide for the Bill in its existing form to apply to a future problem.
Clause 27(3) allows the regulations to specify provisions
“which are not to apply”,
to provide for provisions to apply “with modifications”, and
“make different provision for different purposes (including different provision for England and for Wales)”.
That changes the nature of the Bill for some uncertain future and means that the regulation could provide for a very different version of the Bill to apply to future periods of coronavirus control. For example—these examples are set out by the DPRRC—the regulations could
“modify the arbitration process (for example, by removing the right to an oral hearing); change the principles that govern the making of arbitration awards; limit the types of award that an arbitrator can make; or limit the availability of awards”.
That is all hypothetical, because we do not know what the Minister might do. There is a practical opposition to this and then there is a principled opposition to it.
The memorandum that accompanies the Bill does not explain why the Bill contains this highly unusual Henry VIII power. It gives very broad discretion to rewrite primary legislation—and we all know what we on this side think of using statutory instruments to rewrite primary legislation. It should not happen. Had the Bill instead contained a power that would allow it to apply to future periods of coronavirus control, coupled with a limited power to make necessary changes to these provisions that currently limit its application periods to 2020 and 2021—in other words, extending its periodicity without changing the nature of the Bill itself—it would not have been an issue for the DPRRC or, frankly, for me.
Accordingly, the DPRRC considers that Clause 27
“contains an inappropriately wide delegation of power and that clause 27(3) in its current form should therefore be removed from the Bill”.
I agree, which is why I am speaking against the clause standing part. The Minister knows that the DPRRC is a serious committee; it is one of the most important committees that we have in your Lordships’ House and it does not make these judgments lightly. I hope that the Minister will understand that, acknowledge this issue and find a way of moving forward, while recognising that Clause 27 in its current form is not an acceptable drafting.
I put my name to this stand part notice in the name of the noble Lord, Lord Fox, in the light of the very direct comments we can see in the DPRRC’s report. I am sure that those comments were not made lightly and came from a position of real concern. In my short time in this House, I have picked up that this is a recurring theme and concern. Wherever we have the opportunity to call this out and seek to address the direction of travel, I believe it is our duty to do so.
Having said that, we recognise that it is important to make sure that mechanisms are in place to deal with future potential outbreaks of this pandemic or, indeed, other situations or pandemics that might arise in future. So, in supporting the direction of travel, we ask that the Act be amended by primary legislation to update the arbitration moratorium period. I hope that this would support the DPRRC’s recommendation but ensure that we would be able to extend the period if further restrictions became necessary.
I do not want to make any specific points here, but I echo the very important point made by the Delegated Powers and Regulatory Reform Committee. As a House, we have been assaulted with these clauses with increasing frequency over the past few years. The Delegated Powers Committee has written an unprompted report criticising the adoption of these powers.
On this Bill, I think it unnecessary because we are dealing with a generic problem. I feel that it could be comfortably addressed if there was a need for further extensions as a result of outbreaks. It could be rolled forward, with amendments as required, in primary legislation. The bulk of the work—the hard work—has been done, so I echo the comments in the previous speeches.
My Lords, I am grateful to the noble Lord, Lord Fox, and the noble Baroness, Lady Blake, for notification of their intention to oppose the Question that Clause 27 stand part of the Bill, and for highlighting the concerns expressed by the DPRRC. I also listened carefully to the comments of the noble Lord, Lord Thurlow, of course.
As has been stated in both the other House and this House, we have already seen with the omicron variant that the future of the pandemic is uncertain. I believe that the power in Clause 27 is important because it provides the Government with the ability to take a flexible and targeted approach to reapply any or all of the provisions in the Bill to respond to the specific circumstances of any future periods of coronavirus. None of us can predict what will happen. I assure noble Lords that we will of course always exercise this power in accordance with human rights.
Having said that, we are grateful for the report of the Delegated Powers and Regulatory Reform Committee. I acknowledge that it makes some important points, which I will consider carefully as we prepare for Report.
I am not sure whether I have to withdraw, but I thank the Minister for his comments. We look forward to consulting between Committee and Report. This is important. I cannot speak for the noble Baroness, Lady Blake, but I suspect that we would both consider it necessary to take this forward in the event that the Minister was unable to meet the DPRRC at least most of the way.
Clause 27, as amended, agreed.
10: After Clause 27, insert the following new Clause—
“Review of the impact of this Act
(1) Four months after the day on which this Act is passed the Secretary of State must publish a review of the impact of this Act and whether it has provided tenants and landlords with an effective process of arbitration.(2) The review in subsection (1) must make an assessment as to whether awards issued under this Act have been given in a fair and consistent manner.(3) The review must also include an assessment as to whether further guidance should be issued as a result of its findings.(4) The Secretary of State must lay a copy of the review before both Houses of Parliament.”Member’s explanatory statement
This amendment would require the Secretary of State to review the impact of this Act four months after the Act has been passed.
My Lords, we are on the last group— so soon. The amendment
“would require the Secretary of State to review the impact of this Act four months after the Act has been passed.”
That is unusual because, normally, the review process is one year, or five years, or whatever. However, we need to look at Clause 9, which sets a time limit of six months from when the Act is invoked or enacted for people to submit their process. I may have misunderstood —if so, I hope the Minister can put me right—but, if that is the case and that six months is a serious period, we need to assess the progress of this Bill in time for the Minister to roll it forward; the Bill makes provision for that, as I understand it.
We have talked about availability; the Minister has said that he will keep this under review. We have talked about cost; the Minister has said that he will keep this under review. We have talked about regional distribution and how that works; the Minister has said that he will keep this under review. My amendment would create a process that allows this review to happen formally so that your Lordships’ House and the Commons have time to roll this forward if some of the issues that we have discussed are preventing the process going forward.
I want to say one thing on the subject of fees. It comes back to a point that I ask the Minister to continue to review. As the noble Lord—Lord who? Sorry, Lord Thurlow—pointed out, there are a lot of ancillary costs other than the cost of the arbitration process itself; there is the cost of preparing for it, for example. In the end, this can be a loaded gun that the landlord—or the tenant, depending on which way it goes—can use. In other words, “It’s going to cost you this anyway so you might as well give me that”. I do not think that that is the purpose of this Bill. The Bill’s purpose is not to enrich massively dozens of service industries; it is designed to keep commerce rolling. One thing that must be reviewed, and one reason why we are keen to have this four-month review, is the question of whether the cost of fees is causing unfair settlements to occur. With that, I beg to move.
I am pleased to put my name to Amendment 10 and stand here to support it.
Constant reference has been made to monitoring the progress of the matters we have discussed, in particular to assessing the impact on all parties in the spirit of fairness and consistency. I believe that such a review would be welcomed by all parties: landlords, tenants and arbitrators. We must ensure that it is fully understood and clear as to whether the system is well understood, is working well and, most of all, is bringing benefit to those areas where it is needed most.
I would not be persuaded if the argument against this was that it would be onerous or too costly. The cost of failure in an area such as this would be far greater than the cost of keeping a close eye on progress and making sure that adjustments can be made if they are deemed appropriate.
With those few comments, I am pleased to support the amendment.
My Lords, as a punishment for the noble Lord, Lord Fox, forgetting my name, I must object to his proposal and support the Government. In fact, four months is not enough. As we are likely to launch this legislation as an Act, which I hope is soon, just as the holiday season bears down upon the country, four months will become three months. There will not be enough momentum, precedent or example to really form a worthwhile review after such a short time. I realise that time is short and that we must not waste any time at all; we must give guidance based on results as quickly as we can to the sector, to the arbitrating bodies and to landlords and tenants. But I think the period proposed is too short.
My Lords, I rise with some sadness, given that this is the last group. I thought that we were getting into the swing of it this afternoon. I should have hoped for further groups in which noble Lords could have demonstrated their expertise.
Amendment 10 proposes a new clause after Clause 27. I thank the noble Lord, Lord Fox, for his contribution and the noble Baroness, Lady Blake. I am also particularly grateful for the support of the noble Lord, Lord Thurlow.
The Government recognise the importance of appropriately reviewing legislation. I would like to reassure the noble Lord and the noble Baroness that the Bill contains appropriate means of monitoring the arbitration system, which is the essence of the Bill, including the awards made by arbitrators. The period under the Bill for making an application for arbitration is six months, and we anticipate that cases should be resolved as soon as possible thereafter.
The Bill already requires approved arbitration bodies to provide a report to the Secretary of State if requested. This can include details of the progress of arbitrations and the awards made. The Bill also requires arbitrators to publish their awards and reasoning. This will provide transparency and help with consistency of approach. If the need arises, the Secretary of State can also issue updated guidance to arbitrators, for example to clarify or add any points that may arise.
It is neither necessary nor beneficial to require publication of a review within just four months of the Bill being passed. That could slow the arbitration process and the prompt resolution that the whole scheme intends, should parties to arbitration and arbitrators await any findings and any new guidance. I appreciate that the noble Lord and the noble Baroness have proposed this with good intentions, but I ask the noble Lord to withdraw his amendment.
Turning the telescope around the other way, the reason for specifying four months was the Government specifying six months in Clause 9(2). It seems perverse to have a review that comes after the process has essentially ended. That is the problem. I acknowledge the point made by the noble Lord, Lord Thurlow—I shall always remember his name; “That’ll learn you”, as they say where I am from—and I accept his point that three to four months is too short to review this. Therefore, six months is too short for the cut-off point. In a strange way, the noble Lord, Lord Thurlow, kind of makes my concern clear. If we are to review this, the review needs to come when changes can be made and when significant numbers of potential future cases are better served by the process. Does the Minister agree?
My Lords, I think I will stick by my previous comments. I believe that not just the interests of landlords and tenants but those of the country are best served by getting on with this. Even though I respect the points that the noble Lord made, I stick with my previous comments.
I thank the Minister for his comments, which I clearly do not agree with. Everybody’s interests are best served by getting on with something as long as what we are getting on with is a good thing. As someone who climbs and rambles, I know that heading off in the wrong direction and keeping walking for a period before starting to assess the direction in which one is walking is not a good idea. What one does when one sets out on a journey is check and check again, and make changes. This amendment would make sure that any trimming that is required to add direction is done in time for it to have a meaningful effect on the outcome of the largest possible number of cases. Having said that three times in three different ways, I beg leave to withdraw the amendment.
Amendment 10 withdrawn.
Clauses 28 and 29 agreed.
Schedule 1 agreed.
Schedule 2: Temporary moratorium on enforcement of protected rent debts
11: Schedule 2, page 19, line 45, at end insert—
“(b) a person other than the tenant who is liable on an indemnity basis for the payment of rent under a business tenancy, and(c) a former tenant who is liable for the payment of rent under a business tenancy.”Member’s explanatory statement
The amendment would secure that references to the tenant include any other persons who are liable under a business tenancy for payment of rent.
Amendment 11 agreed.
Schedule 2, as amended, agreed.
Schedule 3: Winding-up and bankruptcy petitions
12: Schedule 3, page 23, line 42, at end insert—
“(b) a person other than the tenant who is liable on an indemnity basis for the payment of rent under a business tenancy, and(c) a former tenant who is liable for the payment of rent under a business tenancy.”Member’s explanatory statement
The amendment would secure that references to the tenant include any other persons who are liable under a business tenancy for payment of rent.
Amendment 12 agreed.
Schedule 3, as amended, agreed.
Committee adjourned at 2.37 pm.