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H Samuel – Coronavirus rent arbitration - award

The first award has this week been released in the arbitration scheme set up by the Commercial Rent (Coronavirus) Act 2022 (the Act). The tenant was unable to obtain any rent relief: the application was dismissed. The arbitrator, Gary Cowen QC of Falcon Chambers Arbitration, endorsed the position that offices were not subject to formal Closure Requirements under the Act, and therefore the rent in question was not Protected Rent Debt under the scheme.

The tenant applicant (the company behind H Samuel and Ernest Jones) owed £448,043.04 of rent arrears concerning its registered office. The Arbitrator dealt solely with the preliminary issue of eligibility.

Section 4(1)(b) of the Act sets out that rent protected by the scheme is rent of commercial premises ‘of a description subject to a closure requirement.’ A closure requirement is defined at section 4(2) principally as being an obligation to close businesses of a ‘specified description’.

The tenant argued that the head office premises were subject to a Closure Requirement, because the purpose of its head office accommodation was to support the retail business that itself was subject to a Closure Requirement. In support of this contention, the tenant pointed to the fact that the head office employees were almost all able to work from home, and accordingly the tenant was unable to compel them to attend the office. However, the arbitrator found that the obligation to work from home where possible applied to an individual, not to a business, and the rent protection afforded by the scheme did not extend to office accommodation, but rather only the retail shops which were compelled to close. The fact that the office existed solely to support the retail business did not bring the head office premises within the scheme for rent relief.

Therefore, the premises in question were not ‘subject to a closure requirement’ and were not ‘adversely affected by coronavirus’ for the purposes of section 4 of the Act: it was not protected rent debt.

Key point:

  • some observers may find it surprising that the tenant applicant thought there were good prospects of success in the Arbitration – the vast majority of industry observers had previously been of the opinion that office premises were not subject to a Closure Requirement
  • the arbitrator has indicated that he will make a costs award that the losing party will pay the winning party’s costs of the arbitration. The parties will now make costs submissions. It is interesting that the suggestion is that the arbitrator’s powers may extend beyond the Act in this regard (see section 19(7))
  • we will watch out for further awards being made, particularly concerning businesses that were required to close, and how the arbitrators approach rent relief. More awards are expected in the coming weeks.  As matters are resolved,  they will be published by the arbitration bodies dealing with them
  • although the scheme comes to an end on 23 September 2022, because of the pre-arbitration steps that are required, we expect that any disputes that will be referred to the arbitrators will have been notified to their counterparties by 25 August, unless an argument is raised that the pre-arbitration steps can be dispensed with