Falcon Chambers Arbitration recently released three awards under the Commercial Rents Act 2022 (coronavirus), which provide welcome guidance on the interpretation and application of the 2022 Act.
In a victory for landlords, the first known arbitration award under the Commercial Rents (Coronavirus) Act 2022 refused to grant the tenant relief from his £450,000 arrears relating to his head office premises. In dismissing the tenant’s referral to arbitration under the 2022 Act, Gary Cowen QC determined that the rent the tenant was seeking relief from was not a protected rent debt under the 2022 Act because the premises to which the arrears related were not subject to a closing requirement, so the tenant had not been affected by the coronavirus.
The second award, by Stephanie Tozer QC, concerned a matter of procedure, with the main finding being that while an arbitrator is likely to allow changes to correct clerical/arithmetic/typing errors in the parties’ original formal proposals, more substantial changes in methodology or reasoning will not be permitted and will instead have to be addressed again in the second round of proposals.
Finally, in the third most recent award, the fact that the tenant went into voluntary liquidation shortly after the landlord submitted a protected rent debt to arbitration did not impact or disrupt the arbitration process. The arbitrator therefore proceeded with an award, which required him to first determine whether the dispute was eligible for an award of relief (before considering how to resolve the issue of relief). One of the eligibility requirements is that the tenant’s business is viable (or could become viable if they receive rent debt relief). In this case, Martin Dray determined that the tenant’s business was not viable and would not become viable even if relief from payment of the rental debt of approximately £81,000 was granted. The dispute was therefore not eligible for the award of compensation and was therefore dismissed.
This article will focus on the first award, as it relates to an issue that many have grappled with since the start of the arbitration program under the 2022 Act.
Facts and Arguments
The tenant, Signet Trading Ltd, operates around 300 retail stores under the H Samuel and Ernest Jones brands, but the arbitration only concerned its four-storey headquarters premises in Hertfordshire.
On March 23, 2020, as a result of the pandemic, all of its more than 300 retail stores were closed and all but two employees working from its head office were forced to work from home.
Signet argued that rent that became payable during the pandemic in respect of its head office premises was a “protected rent debt” under the 2022 Act, in respect of which relief could be sought, on the following basis:
- Lockdown regulations have forced all of its retail stores to close and the vast majority of its head office employees to work from home
- Although the offices were not forced to close, the business it carried out from its head office premises supported its retail business, so it was also subject to a closure obligation.
- The tenant’s business was therefore negatively affected by the coronavirus during the relevant period
The arbitrator disagrees with the tenant, considering that the law of 2022 only concerns the rent attributable to the specific premises transferred by the commercial lease, in this case the premises of the tenant’s head office. A protected rent debt only arises if a tenant can demonstrate that a closure requirement has affected all or part of the activity carried on in or from the specific premises for which an exemption from payment is requested.
The business operated by the tenant in the premises of its head office was not a retail business forced to close. Even though most head office employees were forced to work from home, the lockdown regulations did not require the premises themselves to be closed, so the tenant’s business which he specifically operated from the premises could not be considered affected by the coronavirus. The arrears accumulated in respect of the premises of the head office were therefore not considered as protected rent debts whose payment could be exempted under the law of 2022.
The arbitrator rejected the dismissal and expressed an interim opinion that the tenant, being the losing party, should pay the landlord’s costs.
This award provides useful clarity on the situation regarding retail head office premises. There is no doubt that many retail head offices have been impacted by the pandemic as all of their (non-essential) retail stores were forced to close and offices were largely empty during lockdown periods when individuals were forced to stay home with limited exceptions. .
However, the 2022 law imposes on the arbitrator a close examination of the activity carried out specifically in the premises to which the arrears of rent relate. If neither the activity of the tenant carried on the premises nor the type of premises has been restricted or forced to close, then even if this activity may have been indirectly affected by the forced closure of other related businesses/premises, it will not be considered to have been “adversely affected by the coronavirus” for the purposes of the 2022 Act, and he cannot seek relief from payment of rent arrears accrued during the pandemic.
It will be up to shops or businesses that have been forced by closure regulations to seek relief from the payment of accrued rent in respect of their individual business premises.