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In this week's bulletin we report on the news announced yesterday of the extension to the moratorium against forfeiture of commercial leases, a case assessing qualification for the right to enfranchise and a case on introducing service charges for grounds maintenance to an existing tenancy agreement. 

Moratorium against forfeiture of commercial leases extended until 31 March 2021

In our bulletin on 29 October 2020, we provided a refresher of steps currently available to commercial landlords to recover unpaid rent, along with the key restrictions and their relevant deadlines.

Yesterday, the Government announced a "final extension" to the current restrictions until 31 March 2021. An updated note of the key restrictions and their relevant deadlines is below:

Moratorium against forfeiture – the Coronavirus Act 2020 prevents landlords from exercising a right to forfeit a lease of commercial premises on the basis of a tenant's non-payment of rent during the period from 26 March 2020 to 31 March 2021. Landlords remain entitled to exercise any rights to forfeit which may arise in respect of other breaches, subject to compliance with and service of a notice under section 146 of the Law of Property Act 1925 and any arguments as to waiver;

Statutory demands – there is nothing preventing the service of a statutory demand but these are currently rendered "toothless" as no winding up petition may be presented for an unpaid statutory demand served from 1 March 2020 until 31 March 2021;

Winding up petitions – a "financial effect" test has been introduced meaning that petitions can still be brought in respect of a statutory demand served prior to 1 March 2020 or on the basis the company is otherwise "unable to pay its debts" but only if the creditor has reasonable grounds for believing that coronavirus has not had a financial effect on the tenant company or that the tenant company would have been unable to pay its debts regardless of the financial effect of coronavirus. A statement made by a creditor on this basis will be considered by the Court when deciding whether to allow a petition to be issued;

CRAR (Commercial Rent Arrears Recovery i.e. the new form of distress using bailiffs to recover rent arrears) – the position remains as we last reported and, as at 25 December 2020, CRAR cannot be used unless an amount equal to 366 days' rent is overdue;

The Government's announcement also confirmed that a review of commercial landlord and tenant legislation will be launched in the early part of 2021. The review, it says, will consider issues such as security of tenure under Part II of the Landlord & Tenant Act 1954, different models of rent payment and the impact of coronavirus on the market.

Enfranchisement and rights of first refusal – partially constructed flats do not qualify

The case of Aldford House Freehold Ltd v Grosvenor (Mayfair) Estate and another [2019] EWCA Civ 1848, considered at which point in construction flats would qualify to participate in a collective enfranchisement claim for the freehold under the Leasehold Reform, Housing and Urban Development Act 1993. The Court of Appeal set out that a flat would need to be capable of use as a dwelling for it to be considered a flat under the 1993 Act.

This decision has brought welcome clarity where blocks of flats are under construction and contracts have been exchanged with incoming leaseholders prior to practical completion of construction of the flats. Developers often consider the future of their title and potential transfers of the freehold or headlease interests, one consideration being at which point the building becomes caught by the tenants' rights of first refusal contained in the Landlord and Tenant Act 1987. The 1987 Act contains similar wording to the 1993 Act as to the definition of a flat, meaning that Aldford also provides welcome, if unintended, clarity on this point for developers.

Introducing grounds maintenance charges as "extra services" under an assured tenancy agreement

In the case of Curo Places Ltd v Anthony Pimlett [2020] CWCA Civ 1621, Curo Places, a registered provider of social housing, appealed against the Upper Tribunal's decision that its tenant, Mr Pimlett, was not liable to pay service charges in respect of ground maintenance.

In 2008, Curo Places had granted a tenancy of a one-bedroom bungalow in a sheltered housing scheme to Mr Pimlett. At that time, there was no provision for any service charges in respect of the grounds maintenance, although the service was in fact delivered.

In 2017, Curo Places notified its tenants that grounds maintenance would be charged under the tenancy agreement. Mr Pimlett challenged this decision.

Allowing the landlord's appeal, the Court of Appeal considered clause 2.10.1(iii) of the tenancy agreement, which allowed Curo Places to provide extra services "if it believes this would be useful". The Upper Tribunal had found that grounds maintenance charges could not be useful as the estate would be left in the same position as it was before. The Court of Appeal disagreed and found that the Upper Tribunal ignored the fact that under the tenancy agreement, Curo Places could have stopped providing grounds maintenance at any time.

This decision will come as welcome relief for social landlords, as it is often the case that certain services have historically been provided without charge. The Court of Appeal's decision means that as long as there is provision in the tenancy agreement for new services to be introduced, those new services can include charges for services that were already being delivered.

Insight from our colleagues around the firm

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