This article will provide a brief review of an Arbitration award following the arbitration scheme for commercial rent arrears that arose to support landlords and tenant disputes as a result of the Covid-19 pandemic
This article will provide a brief introduction to the Commercial Rent (Coronavirus) Act 2022 and then review the issues in the Signet trading case.
The Commercial Rent (Coronavirus) Act 2022 (the Act) was put in place to resolve rent debts that had been accrued by tenant businesses as a result of the Covid pandemic.
The Act passed into law on 24th March 2022 and applied to commercial businesses, during a ‘protected period’, where businesses were mandated to close, fully or in part, from March 2020 until the date restrictions ended for their sector.
Under the Act, landlords could not claim the rent during the protected period and encouraged to use the arbitration process, further information on the provisions of the Act can be found in our earlier article by clicking here
2. Review of Signet trading case
Falcon Chambers Arbitration (FCA), led by Gary Cowen QC, published the landmark arbitration award under the Act, on 11 July 2022.
The parties involved were Signet Trading Limited (the Tenant) v (1) Fprop Offices (Nominee) 4 Limited and (2) Fprop Offices (Nominee) 5 Limited (the Landlord), otherwise known as the Signet trading case.
In this case, the Tenant applied for relief from payment for its registered office in Borehamwood, Hertfordshire, of a protected debt concerning the premises, under the Act, as they had accrued rent arrears of almost £450,000.
Following the COVID-19 pandemic, the Tenant had placed most of its staff on furlough and the 35 members of staff based at the premises that were working through the pandemic, were working from home.
Only two members of staff, a security guard and post room worker had remained working on the premises during the pandemic.
More on the award can be read here.
3. The main issues in the award
The main issues in the award were:
whether the tenancy for the office premises was adversely affected by the COVID-19 pandemic within the meaning of of ss.3 and 4(1) of the Commercial Rent (Coronavirus) Act 2022.
whether the rent payable was deemed to be protected rent under the Act.
The Tenant’s argued that although their offices were not premises of description that were required to be closed by the pandemic regulations, as set out in Section 3.2 of the Act.
The purpose of their office was to support retail business, which was subject to regulations and required to close. The Tenant’s noted that as a result, their business was adversely affected by the COVID-19 pandemic and was therefore protected under section 4 of the Act.
4. Issues considered by the Arbitrator
In making their decision as to whether the Act protects the Tenant, the Arbitrator had to first consider the wording of the Act itself.
The Arbitrator noted that while the COVID-19 pandemic regulations made it an offence for a person to leave the place where they were living without reasonable excuse, these obligations were on individuals and not on persons carrying on a business.
Furthermore, although this regulation indirectly affected businesses in that offices remained empty for a significant period of time, the regulation did not require the closure of the premises themselves.
The Arbitrator ruled that although the tenant's main business was for retail purposes, and the effect of the covid restrictions was that many offices remained empty, they were not subject to the closure requirement, and therefore the rent arrears could not be protected under Section 4(1) of the Act.
The was liable to pay the landlord the withheld rent accrued, as a result.
5. Practical implications
Following this ruling, although businesses were indirectly affected by the COVID-19 regulations and their offices remained empty, they will not be protected under the Act if they were not subject to the closure requirement.
This means that businesses not covered by the Act, will be still be required to pay their landlords, their accrued rent costs.
6. A reminder of the timeline to enter into an Arbitration under the Act
It is important to note that the deadline to refer a dispute for arbitration under the Act was 23 September 2022 and there are currently no plans to extend this deadline.
For tenancies that fail to reach an agreement but fall within the scope of the Act, either party can unilaterally apply for arbitration, as an alternative, after negotiations have failed.
Furthermore, parties can also continue to negotiate outside of the legal arbitration process. Parties can also use mediation as an alternative form of dispute resolution.
In conclusion, this case highlights that although businesses were indirectly affected by the regulations following the COVID-19 pandemic, so long as they were not subject to a closure requirement, they will still be required to pay their landlords the accrued rent costs.
The arbitrator also looked at the key question of whether a closure requirement applies to the business carried out from the specific premises, while the indirect Covid restrictions resulted in many offices remaining largely empty, they were not in fact premises subject to a closure requirement and so rent arrears cannot be a protected rent debt.
The ruling provided provisionally that Signet should pay for the landlord’s costs.
Arbitral awards are legal and binding. The grounds for challenge have to satisfy sections 67 and 68 of the Arbitration Act 1996, with appeal on a point of law under section 69 of the Act.
The award provides welcome clarity on the application of the arbitration scheme for landlords of retail and hospitality businesses.
The arbitration scheme expired on 24th September 2022 and was not further extended.