Pandemic arrears: first arbitration award finally published

England and Wales

In March the Government enacted the Commercial Rent (Coronavirus) Act 2022 (CRCA) which gave tenants a final six months’ reprieve against forfeiture action.  The six month window was to enable landlords and tenants to either negotiate a compromise on existing arrears or for either party to refer a ringfenced element of the debt to an arbitrator, invoking the “binding arbitration scheme”.

Ahead of the CRCA coming into force, the Government’s impact assessment indicated that 7,500 cases were anticipated to go to arbitration, and that 1,200 arbitrators would be needed to facilitate these. The CRCA requires any arbitration awards to be made public, subject to redaction of any commercially sensitive material.

We are over halfway through what is anticipated to be the final forfeiture moratorium and the first award (we believe) has only just now been published.  It is not however an award that assesses a tenant’s viability and affordability, being the contentious metrics for judging a compromise – this award deals instead with eligibility for the scheme as a preliminary issue. 

In his award, Gary Cowen QC of Falcon Chambers Arbitration, determines that a retailer’s head office was not subject to a closure requirement during the pandemic and therefore rents falling due under that office tenancy would not be “protected rent debts” as defined by the CRCA. The tenant had argued that the use of the head office was ancillary to the tenant’s main retail business and that when considering whether a business was “adversely affected by coronavirus” the business as a whole should be taken into account. The arbitrator rejected this on the wording of the CRCA and the tenant’s attempt to compromise arrears of almost £450,000 has been dismissed.  

Interestingly, the arbitrator has given a provisional view that the tenant should pay the landlord’s costs of the arbitration and has invited submissions from the parties on this point. This appears to run counter to sections 19 and 20 of the CRCA which give the arbitrator power to award costs in respect of the arbitrators’ fees and expenses only – the CRCA stating that “the parties must meet their own legal and other costs”. This may act as a deterrent to tenants considering a reference to arbitration on the basis they have nothing to lose.

There is still time for references to arbitration to be made and there will no doubt be further awards published in the coming weeks – we are aware of a (small) number. On any view however it would appear that the Government’s impact assessment dramatically overestimated the need for this scheme and we struggle to see how there could be grounds for extending the six month timeframe for a reference to be made.