Joe Walker and James Nelson outline and analyse the first award under the Commercial Rent (Coronavirus) Act 2022 Scheme.
There has been much anticipation in recent months for the decisions under the new arbitration scheme contained in the recently introduced Commercial Rent (Coronavirus) Act 2022 (the “Act”).
In the last week, we have seen the publication of the very first arbitration award under the Act: Signet Trading Limited v Fprop Offices (Nominee) 4 Limited (1) and Fprop Offices (Nominee) 5 Limited (2). The Arbitrator was Gary Cowen QC.
The Act came into force on 24 March 2022 with the purpose of resolving disputes relating to specific rent debts under business tenancies adversely affected by the Covid-19 Pandemic via an arbitration process.
The key criteria for the Act to apply are that there is:
- A “Business tenancy” – meaning a tenancy to which Part 2 of Landlord and Tenant Act 1954 applies (s.2(5) of the Act); and
- A “Protected rent debt” – which, for the purposes of the Act, means a debt under a business tenancy consisting of unpaid protected rent (s.3(1) of the Act).
The rent is only protected if the tenancy was “adversely affected by coronavirus” – i.e. where (a) the whole or part of the business carried on by the tenant was at or from the premises comprised in the tenancy, or (b) the whole or part of those premises, was subject to a closure requirement pursuant to the various coronavirus regulations introduced during the lockdowns (s.3(2) and s.4 of the Act).
Further, the rent must be attributable to a period of occupation by the tenant within the “protected period”. This being the period commencing on 21 March 2020 (the date on which lockdown measures were first initiated) and ending on 18 July 2021 in England and 7 August 2021 in Wales (s.3(2) and s.5 of the Act).
Where the provisions of the Act apply, either the landlord or the tenant may refer the dispute to arbitration within the period of 6 months commencing on the date on which the Act was enacted. The referral period will end on 24 September 2022 – little over two months away.
On referral, an arbitrator may determine the amount of protected rent debt (awarding full, partial or even zero payment to the landlord) and/or whether the tenant is entitled to any relief in connection with the payment of the protected rent debt. Such relief could, for example, take the form of a waiver of interest payments due or granting a tenant a longer period for payment to 24 months (s.13-14 of the Act).
The case – background
Signet Trading Limited (the “Tenant”) was the tenant of premises at Building 3, Imperial Place, Elstree Way, Borehamwood, Hertfordshire WD6 1JN (the Premises”). The landlord was Fprop Offices (Nominee) 4 Limited and Fprop Offices (Nominee) 5 Limited (the “Landlord”).
The Tenant, along with its well-known subsidiary companies H Samuel Limited and Ernest Jones Limited, occupied hundreds of retail stores in the UK selling jewellery and watches, with associated services.
However, the Premises in question did not comprise a retail shop. The Premises were offices (specifically, its registered office) and used by its board of directors and employees.
On 23 March 2020, as a result of the COVID-19 pandemic, the Tenant made the decision to close all of its retail shops. Staff working at the Premises were instructed to work from home and/or were furloughed. Only two of the employees continued to attend the offices – one to scan in post and one was a security guard.
In the arbitration referral, the Tenant sought relief from payment of an alleged protected rent debt constituting unpaid rent arrears totalling £448,043.04 together with contractual interest which was due to the Landlord under the relevant lease of the Premises.
The case – decision
The key question was whether a closure requirement applied to the business carried on by the Tenant at the Premises. As discussed above, this requirement is a prerequisite of a “protected rent debt” for the purposes of s.3 of the Act.
The Arbitrator ultimately determined that there was no closure requirement, the Tenant’s business at the Premises was therefore not adversely affected by coronavirus for the purposes of s.4 of the 2022 Act, and the reference should be dismissed. This meant that no relief was applied to the Tenant’s obligation to pay the unpaid rent arrears and interest under the Lease.
The principal case advanced by the Tenant was that it was subject to a closure requirement by virtue of the Health Protection (Coronavirus Restrictions) (England) Regulations 2020 (the “Coronavirus Regulations”) which came into force on 26 March 2020. Paragraph 5(1) of the Coronavirus Regulations states that a person responsible for carrying on a business which is not listed in Part 3 of Schedule 2 of the Coronavirus Regulations (i.e. offering goods for sale in a shop) must cease to carry on that business.
The Tenant’s business was not one which fell within Part 3 of Schedule 2. The issue, then, was whether the Tenant was carrying on a business of offering goods for sale in a shop from the Premises.
The Arbitrator found that it was plain that it was not: the Premises was an office, not a shop.
Whilst the Tenant sought to argue that the business actually being carried on at the Premises was, in essence, an ancillary part of the same business with the office use merely supporting the Tenant’s retail business, the Arbitrator found that Regulation 5(1) of the Coronavirus Regulations was not intended to and does not extend to such a situation.
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