Property litigation weekly update – 9 July 2020
This week's bulletin considers recent case law on the Right to Manage, the need for early, strategic advice in the case of a tenant insolvency and a further case concerning the stay on possession orders. Positive news (providing much-needed escapism from covid) along with further insight from around the firm.
TFS Stores Limited v BMG (Ashford) Limited & Ors
This judgment concerned whether the automatic stay of possession proceedings imposed by PD 51Z operated so as to stay appeals to counterclaims for possession.
By way of background, on 18 July 2019 the High Court declared that a number of business tenancies did not have security of tenure under the Landlord and Tenant Act 1954, and made possession orders against the tenant TFS Stores Limited (who trade as the Fragrance Shop). The Fragrance Shop was granted permission to appeal on 8 November 2019 and the substantive appeal before the Court of Appeal was to consider whether the six tenancies had been properly and lawfully excluded from the protections in sections 24-28 of the Landlord and Tenant Act 1954.
The Fragrance Shop trades from each of the premises though it has, of course, not been able to do so for much of the period of lockdown. Against this background, the Fragrance Shop applied by letter dated 26 May 2020 to adjourn the hearing of the appeal fixed to start on 24 June 2020 and, after the decision in Okoro (view here), it subsequently contended that the appeal was automatically stayed under PD 51Z.
PD 51Z stays "all proceedings for possession brought under CPR Part 55 and all proceedings seeking to enforce an order for possession… for 90 days", which has since been extended to 23 August 2020.
The Court of Appeal held that, although the first action was for a declaration as to whether or not the tenancies were excluded from the protection from the 1954 Act and therefore not possession proceedings, as soon as the landlord counterclaimed for possession, the entire action became "proceedings for possession brought under CPR Part 55" and so appeals from the orders for possession are caught by the stay imposed in March 2020 by PD 51Z.
As Okoro makes clear, an appeal from a possession order is still to be regarded as "proceedings for possession brought under CPR Part 55". The decision in the Court of Appeal reaffirms this and is not unexpected. If any other analysis were adopted, there would be a risk that some appeals from possession orders would be excluded from the automatic stay, cutting across the purpose of PD 51Z and creating uncertainty.
Right to Manage case law update: Q Studios (Stoke) RTM Co Ltd v (1) Premier Ground Rents No.6 Ltd (2) North Street (Management Company) Ltd  UKUT 197 (LC)
The Upper Tribunal has ruled that purpose built student accommodation containing studio apartments with kitchen and en-suite bathroom were flats that qualify for the Right to Manage under the Commonhold and Leasehold Reform Act 2002.
In order to qualify as a "flat" qualifying for the Right to Manage within the 2002 Act, the premises must be "constructed or adapted for use as a dwelling" and be "a separate dwelling". The building in this case was a purpose built block of student accommodation, containing 292 studios and other common amenities. The studios consisted of a bed, study area, en-suite bathroom and small kitchen facility.
The Upper Tribunal ruled that the studios did qualify as flats, for the following main reasons:
- The premises were constructed for the purposes of a dwelling – the Upper Tribunal ruled that this was an objective test based on the physical characteristics of the property, rather than one to be determined on the basis of any lettings. It was not necessary for the premises to be a person's "home" in order to qualify.
- The studios were "dwellings" – Judge Fancourt ruled that the studios contained the necessary space and facilities required to be a dwelling, as the occupiers could live, eat, sleep and wash there (although the absence of cooking facilities or a bathroom would not have prevented the property from being a dwelling). The common areas provided extra facilities for the benefit of the occupiers, not essential living space, and therefore they did not prevent the studios from being a dwelling. The Upper Tribunal drew a clear distinction between a case where each separate unit comprises all the usual facilities required for residential living and no further living accommodation is provided for use by occupiers, as against a case where the unit lacks certain living accommodation that is provided elsewhere on a shared basis.
This is an important case as it sets the boundary as to what types of property will qualify for the Right to Manage. By focusing on the physical characteristics of the premises, the Upper Tribunal may have opened the door for retirement and care homes containing studio apartments to qualify, although this would be a matter of fact and degree in each case. Conversely, the decision also makes it clear that blocks of student apartments containing cluster accommodation with shared living facilities (e.g lounge and kitchen) would usually not qualify for the right to manage.
If you would like any advice in respect of the Right to Manage or have any queries on this case please do not hesitate to contact the team.
Strategic advice in an insolvency scenario
Company Voluntary Arrangements (CVAs) are used by a debtor to propose a restructure of sums owed to creditors which becomes binding if approved by a sufficient majority. CVAs have been in use for a long time (the Powerhouse CVA led to a High Court challenge in 2007) and were particularly prominent in 2018, dubbed "the year of the CVA". The process Is increasingly being used by commercial tenants affected by the pandemic, particularly in the retail and hospitality sector which is reeling from the impact of lockdown restrictions. Over the last few weeks CVAs have been put forward by Travelodge, Poundstretcher and All Saints, all of which have now been approved. A number of other retail and hospitality tenants have gone into administration. According to data from Re-Leased a commercial property management platform, retail landlords are said to be owed £2.5bn of the June quarter's rent with retailers having paid only 13.8% of the sums due.
Landlords are under significant pressure with tenants across the hospitality and retail sector shutting down, restructuring or refusing to pay rent. In the unwelcome scenario of a threatened or actual tenant insolvency, landlords should take advice quickly to understand the implications of the relevant insolvency process and to protect their position insofar as possible. Depending on the process there may be a window in which action can be taken to forfeit a lease, if possession is desirable, or to use other remedies to improve the landlord's position. If a landlord has funders and can foresee a likely drop in rental income, early open discussions are critical to agree a common approach, between landlord and funder, for dealing with the tenant's financial difficulties and the consequential impact on the landlord's income stream.
The property litigation team are on hand should you wish to discuss any insolvency issues.
Insights from around the firm
- Construction Projects: Adapting to the New Normal and Practical Tips
- Future of work – July 2020
- Webinar: Trowers Tuesdays - maximising inclusivity and the diversity leadership challenge
- As of 1 July 2020, Sydney will power all its operations, including street lights, sports facilities, and buildings (including the town hall) with 100% renewable energy from local sources. In addition to the environmental benefits, this is projected to save the city more than half a million dollars on its electricity bills over the next 10 years. Click here to read further.
- Beavers have been born in Essex for the first time in 400 years, according to conservationists. British beavers were hunted to extinction and were the first locally extinct mammal to be reintroduced into the wild in the UK. Click here to read further.
- Amazon, India, has scrapped single-use plastics in its packaging across all of its fulfilment centres in the country. Click here to read further.