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

Brexit isn’t frustrating…at least for leases

Landlords can (for now at least) breathe a sigh of relief as the High Court has ruled that a tenant cannot bring its obligations under a lease to an end by invoking the doctrine of frustration simply because it will have no option but to relocate if/when the UK leaves the EU.

In Canary Wharf (B4) T1 Ltd and others v European Medicines Agency [2019] EWHC 335 (Ch), the Court held that even though the European Medicines Agency (“EMA“) would be forced under EU law to relocate outside the UK after Brexit the nature of the bargain between the parties was not made radically different by Brexit and the lease is therefore not frustrated.  On the contrary, the inclusion of carefully negotiated alienation provisions in the lease indicated that the parties had contemplated that the EMA might at some point wish to dispose of its interest.  The EMA will therefore remain fully liable under the lease for the remainder of the term, unless of course it successfully appeals this ruling.

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Opening the door to community and landlord engagement

This article was first published on Lexis®PSL Property on 24 January 2019. 

Fiona Sawyer, professional support lawyer in the planning team at Herbert Smith Freehills LLP, and Frances Edwards, senior associate and specialist real estate litigator at the firm, point out that although the government’s ‘open doors’ scheme will certainly help reinstate the high street as a destination for the community, the reality is that town centre rents need to be cheaper and action taken to ameliorate the cost of business rates to enable community uses to occupy town centre premises on a longer-term basis.

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Real Estate EP4: Brexit and the UK real estate market

In this podcast, Herbert Smith Freehills’ Matthew Bonye and Tom Leech QC  discuss the important Canary Wharf Group v European Medicines Agency court case.  This case is highly relevant to real estate development. The tenant, the European Medicines Agency (EMA), argues that Brexit is a frustrating event for its lease and that it can assert that the lease is thereby terminated. If EMA wins, then it can only be on the basis that the law of frustration is considerably wider than it is currently thought to be: until now, there is no English case where a lease has ended due to frustration. If a lease can come to an end due to frustration, then how will this affect investment values and therefore development appraisals, particularly for longer-term commercial leases such as those for anchor tenants or whole building lets to major banks and other institutions, often a key element of a development scheme? Matthew Bonye and Tom Leech QC discuss how the law of frustration has developed and whether this may open the floodgates for other claims by tenants where the parties have not legislated in their lease for an unexpected turn of events in the future.

Our Brexit Hub has further in-depth, sector-by-sector Brexit analysis.

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Proposed changes to permitted development rights and use classes – impact on developers and landlords

Two key themes of the Budget on 29 October 2018 were increasing the supply of housing and improving the health of high streets and town centres. Published with the Budget was the consultation ‘Planning reform: supporting the high street and increasing the delivery of new homes’. Also announced was the government’s ‘Open Doors’ project, aiming to help improve the vitality of town centres by facilitating meanwhile use of vacant units. The ‘Planning reform’ consultation closes on 14 January 2019. A call for applications from landlords who wish to pilot the Open Doors project closes on 31 December 2018. We have prepared a briefing for clients, summarising key proposals that will be of interest to retail landlords, developers and advisers and assessing how these might impact new or existing developments and the lettings of these assets.

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Indigestion for landlords: a new acid test for redevelopment under ground (f)

In October, we wrote about the Supreme Court case S. Franses Ltd v The Cavendish Hotel (London) Limited [2018] UKSC 62, concerning a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). Yesterday, the Supreme Court handed down judgment in favour of the appellant tenant. On face-value, the implications of this case seem to be tenant-friendly; however, here we discuss further the commercial implications of the ruling for both landlords and tenants. Continue reading

Landlords’ motives for redevelopment – good, bad or irrelevant?

Today the Supreme Court will hear the case of S. Franses Ltd v The Cavendish Hotel (London) Limited, a case which property litigators have been following closely since last year. The case concerns a landlord’s ability to oppose a lease renewal under the Landlord and Tenant Act 1954 (the “Act”) using ground (f) (redevelopment). If the tenant is successful in today’s hearing, the evidential burden on landlords contemplating redevelopment could increase dramatically. Continue reading

Residential leasehold – time for change?

At the end of July, hard on the heels of the Housing White Paper published in February, DCLG issued a Consultation Paper on “Tackling unfair practices in the leasehold market”. If you wish to make your voice heard prompt action is needed – the period for responses expires on 19 September.

The main points which are proposed to be covered in future legislation are:

  • Cutting back on the future sale of freestanding houses on a leasehold basis (unfair fees have been charged for extensions etc), save where there is good reason to protect local character or amenities.
  • Limiting the charging and increase of ground rents on new flat leases over 21 years in duration (recent publicity has focused on ten-year doubling of rents which, if not capped, can reduce the price or even make the flat unsaleable).
  • How can we make the (little-used) commonhold regime fit for purpose? Briefly, this combines ownership of a freehold unit with membership of a corporate body which manages the common parts. A commonhold community statement is an essential feature, much of which is standard.
  • What else should be done to tackle “abuse of leasehold” (to adopt DCLG’s wording)? This may include reform of existing leasehold terms and a review of the cost of acquiring the freehold (known as “enfranchisement”).

This Consultation is very much about protecting the interests of the consumer who was either not made fully aware of the true cost of buying a leasehold interest (on top of paying the original price) or who was sold the property on a “take it or leave it” basis, with no ability to negotiate the terms of sale. First-time buyers would have been particularly vulnerable to the latter practice and may not have been properly advised. Continue reading

When quiet enjoyment means just that

Author: Julian Pollock, Partner, Real Estate, London

Earlier this year, the courts decided that, even if there is an express right to carry out works in a lease, a landlord cannot ride a coach and horses through a quiet enjoyment covenant or the obligation not to derogate from grant.  They must take all reasonable steps to minimise disturbance to their tenants, including:

  • notifying the tenant as part of lease negotiations of any intended works;
  • keeping the tenant notified of the programme of works, how long they will last and, how disturbance is proposed to be minimised;
  • ensuring that all practical measures are implemented by the contractor and project manager; and
  • bearing in mind that a higher standard of reasonableness may be required where the landlord is carrying out works for its own benefit.

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Clearing a development site – using Torts Act notices

Author: Matt Leggett, Associate, Real Estate, London

Piecing together a large or complex development site inevitably involves dealing with tenants and occupiers in order to obtain vacant possession. On vacating the site, those tenants and occupiers often leave things behind. Depending on the nature of the site, this can include office equipment, stock, furniture, light or heavy machinery, vehicles and vehicle parts or scrap materials.

Can these items be thrown away? Can they be sold?

Unless the items are obviously abandoned worthless rubbish (i.e. refuse), the answer is usually no. First of all, there may be a question as to who actually owned those items – it may not be the tenant, especially if dealing with items that may be owned by a third party e.g. under a hire purchase agreement. If there is any doubt, then this may need investigating and if a third party tries to claim the items then it is sensible to seek proof of ownership, to protect against any argument by the tenant or occupier that you have given items away incorrectly.  

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