Commercial Rent (Coronavirus) Act 2022

Part 2: Arbitration

Approved arbitration bodies

Section 7: Approval of arbitration bodies

57. Subsection (1) provides for the Secretary of State to approve an arbitration body or bodies to carry out the functions of an "approved arbitration body" as set out in section 8. It is a function of an approved arbitration body to deliver arbitration as a dispute resolution service to settle commercial rent disputes under this Act.
58. Subsection (2) sets out the requirement for the Secretary of State to approve only those arbitration bodies which are suitable to become an "approved arbitration body" and carry out the functions under section 8.
59. Subsection (3) enables the Secretary of State to withdraw approval granted under subsection (1) if an arbitration body ceases to be deemed suitable by the Secretary of State.
60. Subsection (4) states that should the Secretary of State decide that an arbitration body is no longer suitable, as mentioned in subsection (3), the Secretary of State must notify the arbitration body of an intent to withdraw the approval given under subsection (1) and give the body an opportunity to make representations before the approval is withdrawn.
61. Subsection (5) provides that where an approval under subsection (1) is withdrawn, the Secretary of State must make arrangements in relation to fees and expenses, including requiring the body to repay any fees and expenses paid to it, for example for any matters not dealt with, or determining the fees and expenses that the body should be entitled to.
62. Subsection (6) provides that if the Secretary of State withdraws approval of an arbitration body, this does not invalidate the actions of that body before the withdrawal. This means that the withdrawal of approval would not undo anything done by or in relation to the body until that point, including the appointment of an arbitrator, and that awards made would still stand. Where any proceedings were ongoing, it would be for the arbitrator (whether the same one or a replacement arbitrator appointed by the successor body) to decide the extent to which the previous proceedings should stand (see section 27(4) of the Arbitration Act 1996).
63. Subsection (7) requires the Secretary of State to maintain a list of approved arbitration bodies and to publish it.

Section 8: Functions of approved arbitration bodies

64. This section sets out what functions an "approved arbitration body" (as defined in section 7) is to perform.
65. Subsection (1) lists the main functions of an approved arbitration body. Paragraph (a) places a duty on an approved arbitration body to maintain a list of arbitrators who are available to carry out arbitration under the Act and, in the opinion of the approved arbitration body, appear to be suitable on the basis of their qualifications and experience to carry out arbitration under the Act.
66. Subsection (1)(b) provides that, where a reference for arbitration is made to an approved arbitration body, that body is to appoint an arbitrator or a panel of arbitrators from the list referred to in subsection (1)(a) to resolve the matter of relief from payment of a protected rent debt in the case concerned. Where an appointed arbitrator resigns, dies or otherwise ceases to hold office, that body is to appoint another arbitrator from their list to fill the vacancy (paragraph (c)).
67. Subsection 1(d) provides for the approved arbitration body to set, collect and pay its fees and the fees of an arbitrator appointed by it. The body must also publish on its website the fees payable in relation to a reference made to it for arbitration under the Act (subsection 6).
68. Subsection (1)(e) requires an approved arbitration body to oversee (which would include administering) arbitrations for which it has appointed an arbitrator or panel of arbitrators.
69. Subsection (1)(f) provides for an approved arbitration body to remove an arbitrator appointed by it from a case on any one of the grounds listed in subsection (2). Those grounds are that:
    1. circumstances exist that give rise to justifiable doubts as to the impartiality or independence of the arbitrator (paragraph (a));
    2. the arbitrator does not possess the qualifications required for the arbitration (paragraph (b));
    3. the arbitrator is physically or mentally incapable of conducting the arbitration or there are any other justifiable doubts as to their capacity to do so (paragraph (c));
    4. the arbitrator has refused or failed to properly conduct an arbitration case, or has unreasonably delayed the conduct of the proceedings or the making of an award, and that substantial injustice has been or will be caused to the parties as a result (paragraph (d)).
70. Under section 74 of the Arbitration Act 1996, approved arbitration bodies have certain immunity from liability in relation to the function of appointing an arbitrator. Modifications made by paragraph 2(g) of Schedule 1 to the Act to section 74 of the Arbitration Act 1996 ensure immunity is provided on the same basis in relation to the function of removing an arbitrator.
71. Subsection (3) requires the approved arbitration body to ensure that an arbitrator or panel of arbitrators appointed by it is independent from the parties to the arbitration.
72. Where an arbitrator resigns, dies or otherwise ceases to hold office, subsection (4) requires the approved arbitration body to make arrangements in relation to the repayment of any fees and expenses paid to the arbitrator, for example for matters not undertaken, or in relation to the fees and expenses that the arbitrator should be entitled to.
73. Subsection (5) requires an approved arbitration body, where requested by, or as agreed with, the Secretary of State to provide reports to the Secretary of State on the exercise of its functions under section 8, and on how arbitrations administered by the body under the Act are progressing and on awards made. This requirement enables the Secretary of State to monitor arbitration schemes.

References to arbitration by tenant or landlord

Section 9: Period for making a reference to arbitration

74. This section sets out the process for referring a dispute about relief from payment to arbitration.
75. Subsection (1) states that this section applies when a tenant and landlord are in a dispute about the matter of relief from payment of a protected rent debt. The definition of "matter of relief from payment" is provided in section 6 and the definition of "protected rent debt" is provided in section 3.
76. Subsection (2) states that either the landlord or the tenant can refer a dispute to arbitration within 6 months of this Act being passed by Parliament.
77. Subsection (3) provides the Secretary of State with a power to extend the 6-month period for making a reference to arbitration by regulations. This power can be exercised separately for English or Welsh business tenancies, or collectively. Regulations to make this extension are subject to the negative resolution procedure (subsection (4)).

Section 10: Requirements for making a reference to arbitration

78. This section makes provision in relation to steps to be taken by a landlord or tenant before making a reference to arbitration; when a reference to arbitration may not be made and the specific circumstances in which an arbitrator may not be appointed and no formal proposal may be made.
79. Subsection (1)(a) requires that before a reference to arbitration is made, the landlord or tenant must notify the other party of their intention to refer the dispute as to the matter of relief from payment to arbitration. Paragraph (b) provides for the respondent to be able to reply to the notification within 14 days of receiving it.
80. Subsection (2) provides that the landlord or tenant cannot make a reference to arbitration before:
    1. the end of 14 days after the day on which a response is received under subsection (1)(b), or
    2. if no response is received, the end of 28 days beginning with the day the notification under subsection (1)(a) was served.
81. Subsection (3) provides that a reference to arbitration cannot be made, an arbitrator cannot be appointed and any formal proposals under section 11(2) or (4) cannot be made, if the tenant which owes a protected rent debt is subject to:
    1. a company voluntary arrangement (CVA) that has been approved under section 4 of the Insolvency Act 1986, where that CVA relates to any protected rent debt,
    2. an individual voluntary arrangement (IVA), that is approved under section 258 of the Insolvency Act 1986 and relates to any protected rent debt, or
    3. a compromise or arrangement, that has been sanctioned under section 899 or 901F of the Companies Act 2006 and relates to any protected rent debt.
82. Subsection (4) requires a reference for arbitration under this Act to be made to an approved arbitration body.
83. Subsection (5) provides that, after a reference for arbitration has been made, an arbitrator cannot be appointed and formal proposals under section 11(2) or (4) cannot be made if the tenant that owes protected rent is a debtor under certain arrangements on which a decision has not yet been made. These arrangements are where a tenant is a debtor under a proposed CVA or IVA, or a compromise or arrangement to be sanctioned under Part 26 or Part 26A of the Companies Act 2006. Once a decision has been made, the arbitration may proceed if the CVA, IVA, arrangement or compromise is not approved or sanctioned. If it is approved or sanctioned then subsection (3) applies and an arbitrator cannot be appointed or a formal proposal under section 11(2) or (4) made, so the arbitration cannot proceed.
84. The aspects of this section which relate to a CVA and a compromise or arrangement under Part 26 or Part 26A of the Companies Act 2006, apply to limited liability partnerships, as well as to companies.

Proposals for resolving the matter of relief from payment

Section 11: Proposals for resolving the matter of relief from payment

85. This section makes provision in relation to the making of proposals for resolving the matter of relief from payment of protected rent debt. Subsection (1) requires the tenant or landlord, when making a reference for arbitration, to submit a formal proposal for resolving the dispute about relief from payment.
86. Subsection (2) allows the other party to submit a formal proposal in response within 14 days of receiving a proposal made under subsection (1) (assuming the reference is not dismissed by the arbitrator for a reason set out in section 13(2) or (3)).
87. Subsection (3) requires a formal proposal made under subsection (1) or (2) to be accompanied by supporting evidence.
88. Subsection (4) allows either party to submit one revised formal proposal within 28 days of them having given their original formal proposal. A revised formal proposal must also be accompanied by any further supporting evidence (subsection (5)).
89. Subsection (6) allows for the periods mentioned in subsections (2) and (4) to be extended where the parties agree to do so, or where the arbitrator considers that it would be reasonable in all the circumstances to do so.
90. Subsection (7) provides that a "formal proposal" is one which is made on the assumption the reference is not dismissed for a reason set out in section 13(2) or (3) and must state that it is for the purposes of this section and be given to both the other party and the arbitrator.

Section 12: Written statements

91. Subsections (1) and (2) require written statements provided to the arbitrator by a party or another person relating to a matter relevant to the arbitration to be verified by a statement of truth.
92. Subsection (3) allows an arbitrator to disregard such a written statement if it is not verified by a statement of truth.

Arbitration awards

Section 13: Arbitration awards available

93. This section sets out the different awards that an arbitrator may make when deciding on the outcome of a dispute on relief from payment that has been referred to them by the landlord or tenant under this Act.
94. Subsection (2) provides that in cases where the arbitrator determines that the matter has already been resolved by agreement before the reference was made, the tenancy in question is not a business tenancy, or that there is no protected rent debt (as defined in section 3), then the arbitrator must dismiss the reference.
95. Subsection (3) requires the arbitrator to dismiss a reference if they have assessed the viability of the tenant’s business and found that at the time of the assessment the business is not viable and would not be viable even if the tenant was given relief from payment of any kind.
96. Subsections (4) and (5) set out what the arbitrator must do in cases where an assessment of viability is made, and the arbitrator determines that the tenant’s business is viable or would become viable if the tenant is provided with relief from payment of any kind. In these instances, the arbitrator must consider whether the tenant should receive any relief from payment of a protected rent debt and if so, what kind of relief. An award must then be made in accordance with section 14.

Section 14: Arbitrator’s award on the matter of relief from payment

97. This section sets out how an arbitrator should resolve the payment of a protected rent debt as required by section 13(5)(b).
98. Subsection (2) states that before making an award, the arbitrator must consider any final proposal put forward by a party under section 11.
99. The arbitrator must consider the final proposals against the principles outlined in section 15. Subsection (3) applies where both parties have put forward final proposals. If the arbitrator considers that both proposals are consistent with the principles, the arbitrator is required to make the award in line with whichever of the proposals they consider to be most consistent with the principles (paragraph (a)). If the arbitrator considers that only one of the final proposals is consistent with the principles, the arbitrator must make the award set out in that proposal (paragraph (b)).
100. Subsection (4) provides that where only the party making the arbitration reference puts forward a final proposal, the arbitrator must make the award set out in that proposal if the arbitrator considers it is consistent with the principles in section 15.
101. Subsection (5) states that where neither proposal put forward by the parties is consistent with the principles, the arbitrator must make an award that they consider appropriate applying the principles in section 15.
102. Subsection (6) provides that an award under this section may either give the tenant relief from payment of the debt, or state that the tenant will not be given relief from payment.
103. Subsections (7) and (8) provide that where an award under subsection (6)(a) gives the tenant time to repay the debt, including in instalments, the dates for payment must be within a period of 24 months, with such period beginning on the day after that on which the award is made.
104. Subsection (9) sets out expressly how an arbitral award affects the terms of the tenancy regarding rent, only in respect of protected rent.
105. Subsection (10) sets out how an arbitral award affects the liability of the tenant or other person such as a guarantor or former tenant. It sets out expressly that a tenant will not be in breach of covenant and so at risk of forfeiture for failure to pay the rent if the tenant complies with the award. If a guarantor or former tenant ultimately pays then they are only liable for the amount in the award and not the original debt, and that applies whether a guarantor has technically provided a guarantee or indemnity. It also sets out expressly that an amount payable under an award should be treated as rent payable under the tenancy, for the purposes of the tenancy.
106. Subsection (11) defines "final proposal" to mean a revised formal proposal put forward by a party under section 11(4), or if there is no revised formal proposal by a party, the formal proposal made by the party under section 11(1) or (2).

Section 15: Arbitrator’s principles

107. Subsection (1)(a) states that the first principle is that any award should be aimed at:
     1. preserving the viability of the tenant’s business in cases that fall under section 13(4)(a), or
     2. restoring and preserving the viability of the tenant’s business in cases which fall under section 13(4)(b),
     3. so far as that is consistent with preserving the landlord’s solvency. Provision as to an arbitrator’s assessment of viability and solvency is set out under section 16.
108. This means that, providing it preserves the landlord’s solvency, an award providing relief from payment should prescribe the amount and type of relief of payment that would preserve or restore viability of the tenant’s business, taking into account the second principle in subsection (1)(b).
109. Subsection (1)(b) states that the second principle is that, so far as it is consistent with the principles in subsection (1)(a), tenants should be required to pay protected rent in full and without delay. This means that tenants that can pay the protected rent debt, should pay.
110. When an arbitrator considers the viability of a tenant’s business and the landlord’s solvency, they must disregard anything that the tenant or landlord has done to manipulate their financial affairs to improve their position regarding an award. This is to stop ‘gaming’ of the system and ensures that awards are made based on financial information that accurately represents the status of the tenant’s business and the landlord.
111. Subsection (3) sets out what is meant by landlord’s solvency for the purposes of this section. A landlord is considered solvent unless they are, or will become, unable to pay their debts as they fall due.

Section 16: Arbitrator: assessment of "viability" and "solvency"

112. This section sets out the aspects which an arbitrator must consider when determining the viability of a tenant’s business, and the solvency of a landlord.
113. Subsection (1), paragraphs (a) to (c) provide examples of evidence which the arbitrator must, so far as known, consider as part of their assessment of viability of a tenant’s business. Paragraph (d) allows the arbitrator to consider any other information which they consider appropriate to determine the financial position of the tenant.
114. Subsection (2) provides examples of evidence that the arbitrator must, so far as known, take into account when assessing the solvency of the landlord. Paragraph (a) includes "liabilities of the landlord" which would cover rent owed to a superior landlord. Paragraph (b) allows the arbitrator to consider any other information which they consider appropriate to determine the financial position of the landlord.
115. Subsection (3) states that when conducting their assessment under subsection (1) or (2), the arbitrator must disregard the possibility of the tenant or the landlord borrowing money or restructuring their business. This means that tenants or landlords will not have to accrue more debt or reduce their workforce (if applicable) to prove that they are, or can become, viable or solvent.

Section 17: Timing of arbitrator’s award

116. This section makes provision in relation to the time in which arbitrators must make an award. Subsection (1) provides the timings where no oral hearing has been held. In that case, where both parties have put forward final proposals (as defined in section 14(11)), the award should be made as soon as reasonably practicable after the day on which the latest final proposal has been received. Otherwise, the award should be made as soon as reasonably practicable after the last day on which a revised formal proposal can be made (as outlined in section 11(4)).
117. In each case where an oral hearing is held, the arbitrator must make an award within 14 days of the hearing concluding. Subsection (3) states that this period can be extended if both parties agree to it, or the arbitrator considers it reasonable in all the circumstances.

Section 18: Publication of award

118. This section requires the arbitrator to publish an award made under the Act and the reasons for making it.
119. Subsection (3) states that the arbitrator should exclude confidential information as part of any publication under this section unless consent is given by the person to whom the information relates.
120. Subsection (4) defines "confidential information" for the purposes of subsection (3). This is information which the arbitrator is satisfied is commercial information relating to a party or to any other person which if disclosed would, or might, significantly harm the legitimate business interests of the person to which it relates, or information relating to the private affairs of an individual which if disclosed would, or might, significantly harm that individual’s interests.

Arbitration fees and oral hearings

Section 19: Arbitration fees and expenses

121. Subsection (1)(a) and (b) state that any references to "arbitration fees" in this section are to the fees and expenses to be paid to the arbitrator (including any oral hearing fees) and the fees and expenses of any approved arbitration body.
122. Subsection (2) gives the Secretary of State power to make regulations specifying limits on the arbitration fees to be paid by parties. This could include introducing a sliding scale for arbitration fees depending on the amount of protected rent debt being considered in an arbitration case.
123. Regulations made under subsection (2) are subject to the negative resolution procedure in Parliament (subsection (3)).
124. Subsection (4) requires arbitration fees to be paid upfront by the applicant before arbitration can take place. This requirement provides certainty to the arbitrator or panel of arbitrators and the approved arbitration body that their fees and expenses will be paid.
125. Subsection (5) provides the general rule that when making an award (under sections 13 or 14) the arbitrator should require the other party to the arbitration to reimburse the party that made the reference to arbitration for half of the arbitration fees (other than oral hearing fees which are dealt with in Section 20). That is subject to subsection (6), which states that the general rule in section 19(5) does not apply if the arbitrator considers it appropriate to award a different proportion in the circumstances of the case. That proportion may be between (and including) 0% and 100% of the fees.
126. Subsection (7) requires parties to meet their own legal and other costs incurred, except where the arbitrator has made a determination in relation to the reimbursement of arbitration fees and/or oral hearing fees.
127. Subsection (8) clarifies that no term of a lease may be used to recover costs incurred in connection with arbitration (including arbitration fees).
128. Subsection (9) provides the meaning of "applicant" for the purposes of this section, which is the party making the reference to arbitration.

Section 20: Oral hearings

129. Subsection (1) gives one or both parties in arbitration the right to request an oral hearing, which must take place within 14 days of an arbitrator receiving the request (subsection (2)).
130. Subsection (3) allows the 14-day period for holding a hearing to be extended if both parties agree to it, or the arbitrator considers it reasonable in all the circumstances.
131. If both parties have requested a hearing they are both responsible for paying the costs in advance of the hearing taking place (subsection (4)). If the oral hearing is only requested by one party, that party is responsible for paying the costs of the oral hearing in advance (subsection (5)).
132. Where one party has paid the hearing fees in advance, subsection (6) lays down the general rule that the arbitrator, when making an award under sections 13 or 14, should require the other party to reimburse half of the hearing fees. However, subsection (7) gives the arbitrator a power to award reimbursement of such other proportion of the hearing fees if they consider it appropriate (for example, the arbitrator could increase the amount of arbitration fees payable by one party where it had not complied with a direction by the arbitrator).
133. Subsection (8) requires that oral hearings be held in public unless there is agreement between the parties to arbitration that it ought to be held in private. The procedure for the hearing, whether held in public or private, will be for the arbitrator to determine (under the arbitrator’s general power to decide all procedural and evidential matters under section 34 of the Arbitration Act 1996, as modified by paragraph 2(c) of Schedule 1 to the Act). For example, under that general power the arbitrator can decide to sit in private when hearing evidence or submissions on confidential or sensitive matters.

Guidance

Section 21: Guidance

134. Subsection (1) gives the Secretary of State the power to issue guidance to arbitrators about the exercise of their functions and to landlords and tenants about making a reference to arbitration under this Act. Subsection (2) allows the Secretary of State to revise that guidance. This guidance would, for example, be able to give arbitrators and the parties guidance on the type of information to be provided to the arbitrator (including in relation to the assessment of the tenant’s viability), on the process to be followed and on the handling of arbitration cases.
135. Any guidance issued or revised under this section must be published.

Modification of Part 1 of the Arbitration Act 1996

Section 22: Modification of Part 1 of the Arbitration Act 1996

136. The provisions of Part 1 of the Arbitration Act 1996 will apply to arbitration under Part 2 of this Act, as a statutory arbitration, by virtue of section 94(1) of the Arbitration Act. Those provisions will not apply to the extent that they are inconsistent with the provisions of this Act. In addition, section 22 introduces Schedule 1 to the Act which contains modifications to to Part 1 of the Arbitration Act 1996 as it will apply in relation to arbitrations under this Act. Those modifications are needed to ensure that arbitrations under this Act work as intended. For example, paragraph 1(c) of Schedule 1 omits sections 16 to 19 (appointment of arbitrators) of the Arbitration Act 1996, which are inconsistent with sections 7 and 8 of the Act relating to approved arbitration bodies and the appointment of arbitrators.
137. The provisions of the Arbitration Act 1996 that will apply, as modified, include those dealing with the general duty of the arbitrator and of the parties (sections 33 and 40), immunity of the arbitrator (section 29), procedural and evidential matters (section 34), settlement of cases (section 51), the effect of an award (section 58), enforcement of the award (section 66), appeals (sections 67 to 69) and immunity of arbitral institutions (section 74).