UK COVID-19 rent arrears arbitration scheme: no protected rent arrears for office premises

Background

In Signet Trading Limited ( the "Tenant") v (1) Fprop Offices (Nominee) 4 Limited and (2) Fprop Offices (Nominee) 5 Limited (the "Landlord"), the Tenant applied for relief from payment of rent arrears for office premises in Borehamwood, Hertfordshire. The question for the arbitrator was whether or not the tenancy was “adversely affected by the coronavirus”, such that the rent payable was a “protected rent” under the Act.

Requirements of the Act

The Act provides that rent due under a business tenancy is only protected rent if:

• The tenancy was adversely affected by coronavirus; and
• The rent is attributable to a period of occupation by the tenant for, or a period within, the protected period applying to the tenancy.

The Act further provides that tenancies are adversely affected by coronavirus where the business carried out at or from the premises or the premises themselves were subject to a coronavirus regulation requiring them to close.  

The arbitrator determined that the question of whether the debt was protected rent within the Act and therefore whether the dispute was eligible to be resolved by arbitration pursuant to the Act, ought to be determined as a preliminary issue.

The Tenant’s Premises

The Tenant’s business was the sale of jewellery through a large number of national retail stores. On 23 March 2020 the Tenant closed all of its retail stores.

The premises at the centre of the dispute however was the Tenant’s registered office, used entirely as office space (“Office Premises”). The staff working at the Office Premises were instructed to work from home.  The majority of those staff were subsequently placed on furlough with only 35 members continuing to work at home during the pandemic. Only two members of staff remained in the Office Premises: a post room worker; and a security guard.

Were the Office Premises subject to a closure requirement?

Government regulations at the time required a person responsible for carrying on a business of “offering goods for sale or hire in a shop” to cease carrying on that business subject to certain exceptions, such as delivery services.

The Tenant argued that, although the Office Premises were not required to close, the applicant’s business (offering goods for sale from retail premises) was of a specified description required to close. 

The Landlord argued that the government’s closure requirements only applied to the Tenant’s retail shops not the Office Premises, which were not used for the purposes of offering goods for sale.

The arbitrator considered that the Act required him to consider each business tenancy for which relief from payment was sought, for each specific premises, separately.  Here, the Tenant was not offering goods for sale in a shop from the Office Premises. The government regulations did not, at any time, impose closure requirements on office accommodation, which remained capable of occupation throughout.

The arbitrator found that, since the Office Premises had not suffered a closure requirement, the tenancy was not adversely affected by coronavirus for the purposes of the Act. Accordingly, there was no protected rent debt which could form the subject of arbitration. The reference to arbitration was dismissed. 

Next steps

This case is important because:

• The arbitrator exercised his broad discretion to make procedural orders in connection with the conduct of the arbitration.  The arbitrator made directions relating to submissions, evidence and other procedural matters. Importantly for the Landlord, the arbitrator determined that the eligibility of the dispute for arbitration under the Act, be determined as a preliminary issue.  This saved the Landlord the time and expense of submitting proposals for the resolution of the Tenant’s application for relief from payment.
• It may well put an end to tenants seeking to rely on the Act to secure relief from payment of rent arrears relating to office premises.

Authored by Katie Dunn.