Clause 23 - Temporary moratorium on enforcement of protected rent debts

Commercial Rent (Coronavirus) Bill – in a Public Bill Committee at 9:45 am on 14 December 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Stewart Hosie Stewart Hosie Shadow SNP Spokesperson (Cabinet Office), Shadow SNP Spokesperson (Constitution)

With this it will be convenient to discuss the following:

Amendment 8 in schedule 2, page 19, line 3, at end insert—

“whether against the tenant or a person who has guaranteed the obligations of the tenant”.

This amendment would clarify that the definition of “debt claims” includes claims against guarantors.

That schedule 2 be the Second schedule to the Bill.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

The clause and schedule 2 cover a temporary moratorium on enforcement measures.

The difficulties of paying commercial rent during the pandemic are best addressed through negotiation. The Bill provides a system to resolve protected rent debt when negotiation has not worked. It has been designed to consider both parties’ circumstances in the exceptional context of the pandemic. If the landlords could pursue other enforcement methods in respect of the respected rent, parties would lose the opportunity to resolve the debt by mutual arbitration applied by the Bill’s arbitration system. That is why the clause introduces a temporary moratorium on enforcement measures detailed in schedule 2.

During the moratorium period, landlords may not make a debt claim, exercise the right to forfeiture or use the commercial rent arrears recovery—CRAR—power to seize goods in respect of unpaid protected rent debt. They may not recover protected rent debt from the tenancy deposit while the temporary moratorium is in place. If they have done so beforehand, the tenant cannot be required to top up the deposit in that period. If the tenant makes a rent payment without specifying the period it covers, the payment must be treated as relating to unprotected rents before protected rents.

Schedule 2 also enables the arbitrator to consider protected rents under a debt claim issued between the Bill’s introduction and its coming into force, or a judgment on such a claim. It also treats rent payments made after the end of the protected period, when closure or other relevant restrictions are lifted, as for unprotected rents before protected rents.

I emphasise that the Bill’s moratorium and other remedies are temporary. We want the market to return to normal swiftly. Under the clause, the temporary moratorium applies only until arbitration is concluded or, if neither party applies for arbitration, until the application period closes. The temporary moratorium also only prevents access to remedies in relation to protected rent debt. If the tenant in scope of the Bill has failed to pay rent attributable to a period before 21 March 2020 or after the protected period ended, the landlord can take action in respect of that debt. Clause 23 and schedule 2, which the clause introduces, are important to give viable businesses an opportunity to resolve protected rent debt by mutual agreement through the Bill’s scheme.

Photo of Ruth Cadbury Ruth Cadbury Shadow Minister (International Trade) 10:00, 14 December 2021

I will speak to clause 23 and schedule 2, as well as amendment 8, which I tabled with my hon. Friend the Member for Feltham and Heston.

The clause prevents rent debts from being collected during the moratorium period, which begins on the day the Act is passed. As we have said previously, we welcome efforts to put a moratorium on the enforcement of protected rent debts, and the clause outlines a number of protections to stop landlords collecting rent arrears debts, including by preventing the making of a debt claim using commercial rent arrears recovery powers or using a tenant’s deposit. The measures have been broadly welcomed by businesses and we support them.

The provisions on the moratorium period cover the period

“beginning with the day on which this Act is passed”.

Last week, Kate Nicholls of UK Hospitality told the Committee that as soon as the Bill is enacted, communications should go out to ensure that commercial tenants are aware of the arbitration process. That point holds for small businesses and independent businesses. I very much hope that the Government will take steps to ensure that the Bill and the protections in it come into force as soon as possible and, equally, that tenants as well as landlords are aware of the protections.

Schedule 2 sets out in more detail the process by which landlords are prevented from making a debt claim and ensures that landlords are unable to take civil proceedings during the moratorium period. We support those provisions, although we know from the feedback we heard during the witness sessions last week the importance of ensuring that tenants are aware of the moratorium period and of the ability to enter into arbitration. Businesses absolutely need to be made aware of the measures.

The schedule outlines in further detail the various definitions used in the Bill, reaffirms that landlords are not able to make a debt claim against protected debts during the protected period, and outlines how parties can apply for debt claims to be stayed while arbitration goes on.

I want to outline the important issues that we raised about the arbitration process. The process should be fair and transparent, and it needs to have the widespread confidence and support of tenants and landlords. As the witnesses in last week’s evidence sessions said, it is crucial that smaller tenants and landlords should not be made to suffer as the result of an expensive or long-running arbitration process in which they are at risk of being muscled out by the greater power of larger organisations. We welcome the arbitration process and the relief that it will bring, but the process itself needs to be fair, and it needs to ensure a balanced playing field.

Schedule 2 also outlines the fact that a landlord may not use the commercial rent arrears recovery power for protected debt, which we welcome. It also seeks to ensure that a landlord is prevented from enforcing a right to forfeit the tenancy in relation to the non-payment of rent. Subsection 9 prevents a landlord from using a tenant’s deposit. We welcome that provision as part of the wider package of protecting tenants and ensuring that landlords cannot seek to get around the spirit of the arbitration process and the protections around arrears.

Amendment 8 seeks to clarify that the definition of debt claims includes claims against guarantors. It aims to provide extra clarity about whether the protections given against county court action are also provided to the guarantors of tenancies. We have received written testimony from experts in the arbitration field and from the head lessee of the Subway chain, who express concern that guarantors and former tenants were not included in the implications of the legislation. I am sure that the Government want to see, just as we do, that the protection against rent arrears action is spread across all the businesses impacted by covid, as well as those that have given the additional support that new and small businesses so often need, such as their guarantors. Of course, many small businesses are franchisees of chains such as Subway, and its head lessee’s evidence must count for a lot of organisations where there is a head lessee and a franchise system.

We do not want to see a back door created whereby tenants are protected from enforcement but the guarantors are still liable. We also heard evidence from the guarantor of a nightclub in Surrey. We have two issues here: the guarantors and the head lessee. It is crucial that the Government ensure that the guarantors of tenants are also protected against debt claims during the prescribed six-month period. We do not want to see the common-sense measures circumvented if landlords are able to go after guarantors with no limit. As I say, the amendment is specifically about guarantors, but we also have concerns on behalf of head lessees.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

I thank the hon. Member for her comments. Indeed, I agree with her. She said that she wants the Bill to be passed as soon as possible, so I am speaking as quickly as I can to make sure that we can get that done.

On the communications, we have already given plenty of notice. The original announcement was in June. The policy statement and the code of practice were published. We have hosted webinars with key stakeholders, and we will continue to engage with them. The hon. Member is absolutely right. We want to make sure that this measure is known by all so that they can take advantage of it. If they are unable to settle their rent debts between themselves, we can bring this to a head quickly through arbitration and get back to a normal free market as soon as possible.

On the amendment, I can reassure the hon. Member that we will take full note of written evidence that comes in, but paragraph 2 of schedule 2 already prevents claims against guarantors. It prevents the landlord from making any debt claim in respect of protected rent within the moratorium period specified by the Bill. The provision in question is not limited to claims against tenants, so it does not need to state expressly that it covers claims against guarantors.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Schedule 2 agreed to.