Covid-19 and restrictions on enforcement: 2021 update – an end in sight?

Since March 2020, when the Government passed an unprecedented raft of protective measures to restrict a landlord’s ability (in both the commercial and residential sectors) to pursue remedies for the recovery of arrears (but also other covenant breaches), the practical effect has meant that landlords have not been generally permitted to seek to take back premises from tenants based upon forfeiture for non-payment of rent during the Covid-19 pandemic. Additional restrictions on the use of Commercial Rent Arrears Recovery (CRAR) and restrictions on the service of statutory demands to prevent creditors (including landlords) from presenting winding-up petitions helped to complete this circle and afforded tenants with wide-reaching protections against enforcement action throughout 2020.

These protective measures were introduced as separate pieces of legislation but now run concurrently, and were supposed to be temporary in nature. However, throughout the course of 2020, landlords saw the availability of their usual gamut of enforcement options regularly pushed off into the horizon with the Government deciding (often very late in the day) to extend the moratorium/restriction deadlines. Since June 2020, commercial landlords and tenants have been encouraged to seek to agree rent concessions and have restructuring discussions (premised on a non-mandatory Code of Practice applying until June 2021, see here). Whilst commendable in some circumstances, this Code of Practice has not altered the fundamental underlying legal premise that, unless renegotiated with the landlord, rent arrears remain payable by tenants (and any guarantor) eventually.

The start of 2021 appears to be no different for commercial landlords, at least perhaps in the short term.

On 31 December 2020, regulations were passed extending the moratorium on bringing proceedings for forfeiture of commercial premises based upon non-payment of rent (under section 82 of the Coronavirus Act 2020) to 31 March 2021. However, this extension has been described by the Housing Secretary, Robert Jenrick, as “final” and so commercial landlords can perhaps breathe a sigh of relief that the end may be in sight before they can finally forfeit a lease for non-payment of rent without restriction. That being said, the announcement that this extension is supposed to be final was made prior to the announcement of the national lockdown on 4 January 2021, and so it is entirely possible that this date will nevertheless be extended further on the basis that the new lockdown has fundamentally changed the circumstances.

The table below lists the current enforcement rights of landlords which have been subject to restrictions, what those restrictions involve, and when the restrictions will expire.

Evictions ban announcement

Furthermore, on 8 January 2021, the Government announced that it would be extending by six weeks the ban on bailiffs conducting evictions (except for the most serious cases, eg trespass, extreme rent arrears equivalent to six months’ rent, anti-social behaviour, death of a tenant where the property is unoccupied, fraud and domestic abuse) which was due to expire on 11 January 2021.

This means that, whilst the wide-ranging stay on issuing possession proceedings at Court was lifted on 21 September 2020, the practical effect of this announcement means that no evictions can now take place until at least 21 February 2021.The Government has further stated that no evictions are expected until 8 March 2021 at the earliest and this is being kept under review.

What enforcement options remain available to landlords now?

Despite the range of protections currently available to tenants, landlords still have available to them the following range of enforcement measures either individually or in combination:

  • drawing down on rent deposits and seeking top-ups;
  • claiming against current guarantors;
  • claiming against Authorised Guarantee Agreements (AGA) or Guarantees of Authorised Guarantee Agreements (GAGA) for post-1996 leases;
  • claiming against former tenants or former guarantors for pre-1996 leases;
  • deploying the remaining CRAR remedies, subject to the additional restrictions imposed and set out in the table above;
  • (following the lifting of the stay in September 2020) issuing or progressing proceedings for possession, brought on the basis of breach of covenant other than that to pay rent (but subject to the evictions ban restriction referred to above); and
  • County Court/High Court commencement and service of proceedings for debt.

Whilst several restrictions still remain, the Government’s announcement of a “final” extension of the moratorium on forfeiting a lease for non-payment of rent until 31 March 2021 is perhaps an indication of the important balancing act that needs to be made between the competing interests of landlords and tenants, having regard for example to the fact that commercial landlords will generally have their own commitments, most critically in the form of their debt/finance arrangements.

With the national lockdown in full effect at the start of 2021, and a growing sense of unease about when things will “return to normal”, the Government’s latest announcement was an indication of some change of position. It seems entirely possible however that the current circumstances may mean that additional extensions may come into effect despite this. If so, it remains to be seen whether this will be the current (effective) blanket ban, or something more nuanced, perhaps based upon actual ability of tenants to pay. In that regard, the British Property Federation has identified what it calls a class of “can pay, won’t pay” commercial tenants that it considers may warrant an exception to the rule. The position is unlikely to be considered again by Government before early March 2021.

For further information, please contact:

Matthew Weal

Matthew Weal
Senior Associate, Real Estate Dispute Resolution, London
+44 20 7466 7535

Matthew Bonye

Matthew Bonye
Partner, Real Estate Dispute Resolution, London
+44 20 7466 2162

Rhian Arrenberg

Rhian Arrenberg
Professional Support Lawyer, Real Estate Dispute Resolution, London
+44 20 7466 2594

Covid-19 and restrictions on enforcement: where are we now?

Updated 28 September 2020

In March 2020, the Government introduced unprecedented measures which restricted a landlord’s ability to pursue remedies for recovery of arrears (but also breaches of other covenants), should a tenant fail to pay the rent due under its lease. These measures were always stated to be temporary in nature, and aimed to provide tenants with “protection and flexibility in managing their finances” and “to encourage creditors to show forbearance to businesses affected by [Covid-19]”.Those restrictions have been introduced piecemeal, and some apply only in their capacity as landlords, others restrict the actions that all creditors (including landlords) may take against debtor companies.

On 16 September 2020, after much speculation, the Government announced that it would retain some of the protections afforded to commercial tenants beyond the date on which those protections were due to expire (30 September 2020) until 31 December 2020. The practical effect of the extension of the protection period is that landlords cannot generally seek to take back premises let to tenants based upon forfeiture for non-payment of rent until the beginning of 2021. This will have an impact on any rent concession and restructuring discussions between landlords and tenants, and will encourage landlords to reconsider the other enforcement options which remain open to them to recover arrears (more on this below).

Additionally, last week the Government announced that it would also supplement its protection of all debtors (not just tenants) by continuing to restrict the effect of service of statutory demands and preventing creditors (including landlords) from presenting winding-up petitions for an additional three months, so also until 31 December 2020.

Up until 20 September 2020 there had been an additional problem for landlords, because the Court rules were also changed to prevent the progression of any claim for possession. This meant, in practical terms, that forfeiture for tenant breaches other than non-payment of rent were theoretically possible but could not be enforced through the Courts. Since 21 September 2020 this obstacle has been removed, so landlords can consider claims to forfeit leases for non-rent breaches.

The table below lists the enforcement rights of landlords which have been subject to restrictions, what those restrictions involve, and when the restrictions will expire.

At present, the legislation does not limit a landlord’s right to pursue other remedies should a tenant fail to pay any sums due under its lease (or as set out in any rent concession arrangement). Other key enforcement measures still available to landlords either individually or in combination are:

  • drawing down on rent deposits and seeking top-ups;
  • claiming against current guarantors;
  • claiming against Authorised Guarantee Agreements (AGA) or Guarantees of Authorised Guarantee Agreement (GAGA) guarantors for post-1996 leases
  • claiming against former tenants or former guarantors for pre-1996 leases;
  • deploying the remaining CRAR remedies, subject to the additional restrictions imposed;
  • (following the lifting of the stay on issuing, progressing or enforcing possession proceedings on 21 September 2020) issuing or progressing proceedings for possession, brought on the basis of breach of covenant other than that to pay rent; and
  • County Court/High Court commencement and service of proceedings for debt.

As well as preserving these options for landlords, the Government has encouraged landlords and tenants to “act in good faith”, and, where possible, comply with the Code of Practice issued in June 2020. The Code, which will apply until June 2021, is voluntary, seeks to provide a framework by which landlords and tenants can reach compromise arrangements on the level and frequency of payment of rent, service charge and insurance contributions, and sets out underlying principles which each party is expected to adopt during those discussions. It does not change the underlying legal relationship between landlord, tenant and any guarantor, or the terms of their leases. It is possible that compliance will be deemed influential by courts for example when dealing with landlord claims, for example when making any award of costs.

Against this background, commercial landlords across many sectors are experiencing increased voids and non-payment by tenants, large and small. However, commercial landlords are businesses too, and will face their own difficulties, not least complying with their lending covenants and maintaining their cash flow. Will the Government, in time, consider protections for them?

For further information please contact:

Matthew Bonye

Matthew Bonye
Partner and head of real estate dispute resolution, London
+44 20 7466 2162

Rhian Arrenberg

Rhian Arrenberg
Professional support lawyer, real estate dispute resolution, London
+44 20 7466 2594

Planning and the proceeds of crime

The term “proceeds of crime” tends to conjure up images of popular HBO crime dramas and 1950s gambling rings. It certainly doesn’t tend to be associated in most people’s minds with subdivision of flats without planning consent.

But it should be. Southwark Council have recently won a £1.2m proceeds of crime confiscation order from a landlord who converted three flats in London Bridge into 20 studios and bedsits without planning permission (see here for Southwark’s press release). Southwark Council originally prosecuted the landlord in 2010, following which he was fined and ordered to reinstate the property to its original condition. The landlord failed to comply with this order and further charges were brought in 2017. The Council conducted an investigation into the rent that the landlord obtained by renting out the studios, and successfully sought a compensation order for that amount, which it regarded as a criminal benefit. The landlord has three months to pay this amount, with the prospect of a lengthy jail sentence if he fails to pay.

What does this mean for developers?

Most developers will be aware that it is not automatically a crime – though highly inadvisable – to carry out development without planning permission. It is, however, open to the planning authority to take enforcement action in respect of any unauthorised development and it is then a criminal offence to fail to comply with that enforcement action. Fewer developers may be aware that failure to obtain what are often perceived as more “minor” consents – such as highway consents, advertising consent or listed building consent (even if making a minor alteration) – is an automatic criminal offence. It is also an automatic criminal offence to demolish in a conservation area without planning permission.

And, wherever there is a criminal offence, the Proceeds of Crime Act 2002 (“POCA”) could potentially come into play, allowing the planning authority to secure a confiscation order at the same time as a planning prosecution. This follows a Court of Appeal ruling in R v Del Basso [2010] EWCA Crim 1119 that confiscation orders can be sought in planning cases. POCA entitles the local authority to apply for an order to recover an amount equivalent to the benefit gained from the criminal conduct in question. So, this could amount to, for example:

  • In the case of a failure to comply with a planning enforcement action – the rental income in respect of the unauthorised development (as in the Southwark case);
  • In the case of a failure to obtain advertising consent – an apportionment of the additional revenue that results from the illegal advertisements (although establishing the value of the benefit here would be more challenging).

The Del Basso case concerned a park and ride business that was run in breach of planning control. The entire business was therefore founded on a criminal act, rather than there being an isolated incident in the course of a very much larger business. It also involved a deliberate decision to ignore enforcement action when it was taken by the planning authority. However, the Judge’s comments in the Crown Court, which the Court of Appeal agreed with, are worth repeating:

“I conclude with a final observation about the mentality of the [appellants] and other similar law breakers. I have received the strong impression that neither the [appellants] nor … their accountant appreciated fully the risk that the companies and individuals involved in the park and ride operation faced from confiscation proceedings. They have treated the illegality of the operation as a routine business risk with financial implications in the form of potential fines or, at worst, injunctive proceedings. This may reflect a more general public impression among those confronted by enforcement notices with the decision whether to comply with the law or to flout it. The law, however, is plain. Those who choose to run operations in disregard of planning enforcement requirements are at risk of having their gross receipts of their illegal businesses confiscated.”

Since Del Basso, there have been a number of successful prosecutions in enforcement cases where, in addition to the standard fines, a confiscation order has been made. This may be motivated by the fact that of 37.5% of the funds from successful prosecutions under the Act go directly to the planning authority. In times of budgetary pressures on planning authorities, there are an increasing number of examples of them resorting to every weapon available to boost revenues and disincentivise bad behaviour.

It is not unusual for developers to pay a great deal of attention to ensuring that they get the initial planning consent exactly right, only for those aspects of a scheme which are perceived to be more “minor” or routine – such as advertising consents, highways licences, or listed building alterations – to fall by the wayside during the delivery phase. Developers may not appreciate that failure to obtain such consents, or to comply with the conditions of such consents, is automatically a criminal offence and can have severe consequences, including large financial penalties. The Southwark case is only the latest example of the importance of ensuring that your legal and consultant team are engaged throughout the delivery phase to ensure that you are obtaining the right consents at the right time, and complying with them.

Put simply, if you are considering working on the highway, putting up an advertisement or altering a listed building, a phone call to your lawyer to understand the process before doing so may ultimately save your money, stress and reputation in the long run.

Author: Annika Holden, Associate (Australia), planning, London

For further information please contact:

Annika Holden

Annika Holden
Associate (Australia), planning, London
+44 20 7466 2882

Matthew White

Matthew White
Partner and head of UK planning practice, London
+44 20 7466 2461

Listed building enforcement: the perils of altering or extending a listed building

Author: Charlotte Dyer, Senior Associate, Planning, London

Anyone intending to alter or extend a listed building must pay careful attention to the rules regulating development of listed buildings or they risk severe penalties.  Where such works have been carried out without consent or in breach of a condition, this blog entry explains the three options available to the local planning authority to enforce against that breach: criminal prosecution, enforcement notices and injunctions.  These options are not mutually exclusive and can be progressed in parallel.  This blog entry does not address demolition, in respect of which different rules apply.  

Importantly, not all works require listed building consent, only those that would affect the character as a building of special architectural or historic interest, and this is not dependent on the scale of the works.  If there is any doubt about whether this threshold is met in respect of proposed works, we strongly recommend that you enter into discussions with the relevant local authority before beginning the works.

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