Commercial Rent (Coronavirus) Bill

Written evidence submitted by Bill Chandler of Hill Dickinson LLP solicitors (CRCB03)

Commercial Rent (Coronavirus) Bill

1. Background/interest

1.1. I am a commercial property solicitor with 25 years post qualification experience. I am currently a legal director and professional support lawyer at international law firm Hill Dickinson LLP. I have been keenly following developments in respect of commercial rent arrears arising from the lockdown, and I have presented seminars and written articles on the subject.

1.2. https://www.hilldickinson.com/people/bill-chandler

1.3. With a broad client base, Hill Dickinson represents a number of landlords and tenants affected by these issues. We are therefore keen that the proposed ringfencing and arbitration scheme is clear and workable for all parties involved.

2. Executive summary

2.1. My comments on the Bill relate to two aspects:

2.1.1. the timing of its introduction and implementation; and

2.1.2. the impact on parties other than the current landlord and tenant, particularly guarantors and former tenants.

3. Timing

3.1. The Government has previously indicated (for example, in the Policy Statement published on 4 August 2021) that the existing moratoria on forfeiture, CRAR and statutory demands/winding-up would not necessarily last until 25 March 2022 and would be released earlier if the new ringfencing/arbitration scheme could be put in place before then.

3.2. It makes perfect sense for the Bill to be passed at the earliest opportunity. This would allow the new moratorium (which is wider in scope than the existing moratorium, but limited to protected rent debts) to be introduced quickly, thereby giving additional protection to tenants and guarantors with protected rent debts, whilst allowing landlords to start pursuing rent debts that are not protected.

3.3. Early adoption would also minimise the period between 10 November 2021 and implementation of the Bill, meaning that fewer matters are caught by the quasi-retrospective provisions concerning debt claims in Schedule 2 and bankruptcy proceedings in Schedule 3.

3.4. However, section 9(2) of the Bill currently provides for the 6 month window to make a reference under the new arbitration scheme to begin on ‘the day on which this Act is passed’. Since the Code suggests that the arbitration scheme will not open for business until 25 March 2022 (to give landlords and tenants an opportunity to resolve matters themselves before resorting to arbitration), these two provisions can only both be true if the Act is passed on 25 March 2022.

3.5. Aside from the obvious logistical issue of needing to manipulate the date on which the Act is passed to allow the arbitration scheme to commence when intended, this will delay the date on which tenants obtain the benefit of the new enhanced moratorium for protected rent debts and from which landlords can pursue rent debts that are not protected.

3.6. I would therefore suggest that the Bill is passed as soon as possible, but that section 9(2) is amended so that the window for arbitration opens on 25 March 2022 (regardless of when the Act is passed) rather than the date on which the Act is passed.

4. Impact on third parties

4.1. The Bill and the Code inevitably concentrate on the position of the current tenant and the current landlord. However, there may be other parties with an interest in the outcome of the arbitration. For example:

4.1.1. the current tenant may have a guarantor; and/or

4.1.2. there may be previous tenants who remain liable to the landlord, either under an authorised guarantee agreement in respect of leases granted since the commencement of the Landlord and Tenant (Covenants) Act 1995 on 1 January 1996, or who remain liable under privity of contract principles for leases granted before that date. There will be relatively few rack rent commercial leases still in existence that predate 1 January 1996, but they cannot be discounted entirely.

4.2. I have written an article for Estates Gazette that discusses some of the issues this raises and the article can be found at https://www.egi.co.uk/legal/does-the-governments-commercial-rent-arrears-scheme-guarantee-satisfaction/ (subscription required).

4.3. The main issues to consider are:

4.3.1. Do all these people obtain the benefit of the new moratorium? ‘Tenant’ is defined as including ‘a person who has guaranteed the obligations of the tenant under a business tenancy’ for the purposes of Schedule 2 paragraph 3 (debt claims) and Schedule 3 (winding up and bankruptcy petitions). That should be sufficient to include a guarantor of the current tenant and also appears to include a previous tenant who is liable under an authorised guarantee agreement, but it will presumably not include former tenants who are liable under privity of contract principles. The Bill should make clear (ideally by express reference) the extent to which protection does or does not extend to all former tenants.

4.3.2. Section 15 of the Bill (Arbitrator’s principles) focuses on preserving the viability of the current tenant’s business (so far as that is consistent with preserving the landlord’s solvency) and in extreme cases the arbitrator is required by section 13 to dismiss the reference entirely if the business of the current tenant would not be viable even if relief were given. However, even if the current tenant’s business cannot be saved, relief could potentially affect whether the business of a guarantor or former tenant remains viable. The committee should therefore consider whether the viability of other parties with concomitant liability for the protected rent debt should be made a relevant factor, either generally or at least in circumstances where section 13(3) applies and the debt is likely to be paid by someone other than the current tenant.

4.3.3. The committee needs to be mindful of a potential ‘loophole’ whereby a tenant could be denied the protection of the ringfencing/arbitration scheme and pursued for the full amount of the debt because of actions outside of its control:

4.3.3.1. A former tenant or guarantor pays the protected rent debt (perhaps, but not necessarily, because they are not [obviously] protected by the moratorium);

4.3.3.2. The current tenant can no longer refer the rent debt to arbitration, because it is no longer ‘unpaid’ (the only exception in the Bill is where rent has been paid out of a rent deposit, there is no exception where the rent has been paid by a former tenant or guarantor);

4.3.3.3. The former tenant or guarantor brings an indemnity claim against the current tenant for the sums paid to the landlord by the former tenant or guarantor;

4.3.3.4. That indemnity claim is not subject to any moratorium, since it is not a claim brought by the landlord.

Bill Chandler

3 December 2021