Commercial Rent (Coronavirus) Act 2022

The Commercial Rent (Coronavirus) Act 2022 was a Government Bill introduced in the House of Commons on 9 November 2021. It received its third reading on 13 January 2022 and was introduced in the Lords the following day.

The Bill completed its Lord stages on 15 March, and the Commons considered Lords amendments on 23 March. Royal Assent was granted on 24 March 2022, with most of the Act coming into force on that day.

The Act introduces a binding arbitration scheme available to landlords and tenants unable to reach agreement on commercial rent debts built up during periods of coronavirus restrictions in England and Wales. Either party has six months to refer a dispute to arbitration, to be administered by Government-approved arbitration bodies.

The issue

Many non-essential businesses were forced to close as part of measures to control the spread of coronavirus. Losing their source of income meant that many fell behind on their rent.

The Treasury initially estimated that the total amount of business rent arrears could be around £9 billion (pdf) by March 2022. Data suggested that pubs and bars, restaurants, clothes retailers and hotels owed the most.

Initial Government action

To help viable business survive during the pandemic, the Government brought in three main temporary measures to help businesses falling behind on their rent. These were restrictions on (1) landlords forfeiting business leases; (2) using the statutory Commercial Rent Arrears Recovery procedure; and (3) presenting winding-up petitions.

In June 2020 the Government, in consultation with industry bodies,  introduced a voluntary UK-wide Code of Practice to help commercial landlords and tenants come together to negotiate on rent arrears. A Call for Evidence was then published in April 2021 seeking views on six options for resolving rent debts built up during the pandemic, including allowing some or all its temporary measures to expire, and introducing binding or non-binding arbitration processes.

In response to the Call for Evidence, on 16 June the Government that it would introduce legislation to establish a binding arbitration system to resolve disputes, where landlords and tenants could not agree on a solution. The temporary restrictions on enforcing rent arrears would be extended to March 2022.

The Act

On 9 November 2021 the Commercial Rent (Coronavirus) Bill 2021-22 was introduced to the House of Commons, alongside an updated Code of Practice which explained the Bill’s processes and set out the principles that should guide the landlord and tenant in negotiating rent debts. In it the Government indicated that it hoped to pass the Bill by 25 March 2022, to allow the arbitration process to begin afterwards. Restrictions on the enforcement on rent debts would also be extended during the timeframe for references to arbitration. The Bill initially consisted of thirty clauses and three Schedules.

When passed, the Act contained 31 sections (due to the removal of one clause at Commons Report stage and the addition of two at Lords Report stage) divided into four parts:

• Part 1 (sections 1 to 6) gives an overview of the Act and defines the key terms used in it. It extends to England and Wales only, except for parts of it that interact with Part 3 and so extend to Scotland and Northern Ireland;

• Part 2 (sections 7 to 22, and Schedule 1) introduces and sets the boundaries of a binding arbitration process to be used when business landlords and tenants can’t agree how to deal with outstanding rent arrears. It extends to England and Wales only;

• Part 3 (sections 23 to 27, and Schedules 2 and 3) extend existing restrictions on enforcing business rent arrears, to ensure they cannot be used to undermine the arbitration process. It extends to England and Wales, with certain provisions also extending to Scotland and Northern Ireland; and

• Part 4 (sections 28 to 31) deals with the scope and extent of the Bill. It extends to the whole of the UK.

The Government’s view was that a legislative consent motion was required from the Welsh Senedd (only) in respect of devolved matters. This was obtained on 8 March 2022.

Amendments in the Commons

Twelve amendments were made to the Bill in the Commons – all Government amendments made at Report stage without a division. These amendments:

• removed (at the request of the Northern Ireland Government) the power for them to make regulations for purposes corresponding to the purposes of the Bill in Northern Ireland; and

• made several changes intended to be minor or clarificatory, such as clarifying the definition of “service charge” and which party is responsible for paying arbitration fees.

No other amendments were tabled in the Commons that were pressed to a division.

Amendments in the Lords

Twenty amendments were made to the Bill in the Lords – all Government amendments made without a division. These comprised:

• six amendments made at Committee stage, which clarified:
  • the meaning of a business being “adversely affected by coronavirus);
  • that an arbitrator’s award of relief alters the effect of tenancy terms;
  • that the power under clause 27 (current section 28) to apply the Act to any future closure requirements can be used for mandated closured 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; and
  • that references to the tenant include any other persons who are liable under a business tenancy for payment of rent.

• thirteen amendments made at Report stage, which mainly:
  • clarified areas of Welsh Government competence under the Bill; and
  • responded to concerns in a report of the Delegated Powers and Regulatory Reform Committee on clause 27 (current section 28) regarded the application of the Bill to any future closures. The changes sought to ensure that delegated powers in that clause cannot be used to change the operation of the arbitration process or policy.

• one amendment made at Third reading, ensuring that arbitration bodies removing arbitrators have immunity unless they act in bad faith.

No other amendments were tabled in the Commons that were pressed to a division.

Commons consideration of Lords amendments

The Commons approved all Lords amendments made in a short debate on 23 March 2022. Shadow Minister Seema Malhotra expressed Labour’s support for the amendments made but noted ongoing concerns about the costs of arbitration proceedings, ensuring enough arbitrators are available, and ensuring decisions are fair and consistent. Royal Assent was obtained the following day.

Commentary

The Act enjoyed cross-party support throughout its passage in Parliament. On 24 March, Minister Paul Scully explained that the Government now expected the Act’s scheme to administer around 2,800 cases, significantly less than the 7,500 initially estimated.

On 23 February 2022 the Government issued draft guidance to arbitrators on how to administer cases. At Lords Report stage Minister Lord Grimstone said the guidance had been well-received by stakeholders, and he expects final guidance to be published by the Government as soon as possible after Royal Assent.

A Government press release issued on 24 March noted that the Act seeks to “help the market return to normal as quickly as possible”.