Draft statutory guidance 

The Department for Business, Energy and Industrial Strategy has published a working draft of statutory guidance on how arbitrators should exercise their functions under Part 2 of the Commercial Rent (Coronavirus) Bill.

The Bill is currently progressing through Parliament and is expected to receive Royal Assent by the 25th March 2022, when the moratorium on forfeiting commercial leases for arrears of rent ends.

The Bill establishes an arbitration system to resolve certain unpaid rent debt (which includes service charge, insurance and annual rent) which are attributable to the pandemic.

The Bill will enable an arbitrator to award different forms of relief where the matter has not been resolved between the parties.

Provisions of the Bill

The current draft guidance contains an explanation of the provisions of the Bill which are relevant to arbitrators and provides an initial explanation (paragraph 7.4) of the concept of the arbitrator’s assessment of the:

viability of the business of the tenant and the landlord’s solvency”.

The lack of clarification of what “viability of the business of the tenant” means has been a major issue with the Bill as drafted, and it remains unclear even with the draft guidance what it means and what it does not mean.

We are told that this “viability” point will be further developed following input from stakeholders.

The government welcomes views on this draft guidance about any areas where it is thought that further clarification may be needed for arbitrators.

Commercial Rent Coronavirus Bill draft statutory guidance

Amending the Bill

It remains to be seen if the government will amend the Bill to include the Lord’s proposed amendments (some of which address a number of current issues with the Bill) or to pick up on points that the Lords have not covered but which feedback has been given by stakeholders, for example:

Adjusting very tight timeframes:

  • Once a referral is made, the counterparty must submit proposals with supporting evidence within just 14 days, with revised proposals submitted by the parties in successive two-week periods.

Tackling the issues of inconstancies in arbitration decisions:

  • Many tenants will have multiple landlords, and each referral will be to an independent adjudicator, each likely to come up with differing views on the “viability of the business of the tenant” for the same tenant.

Ensuring the balance between publishing sensitive commercial information about parties’ financial positions and parties providing limited disclosure to prevent such information from being made public:

  • The Bill states the award made and reasons for doing so must be published by the arbitrator, excluding all confidential information if consent to publish is not forthcoming from the parties – that works if the application determination is a paper exercise, but some applications require a hearing, and these will be heard in public with no discretion on the arbitrator’s part to hear evidence on sensitive commercial information in private. Some parties may elect to go to a public hearing for the purpose of gaining an advantage.

The government will publish a final version of the guidance once the Bill receives Royal Assent. We will provide a further update when this happens.

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