Property litigation weekly update – 11 June 2020
As another week flies by, our twelfth bulletin reports on the government's latest measures to further stall residential possession orders and encourages commercial landlords to consider all options when it comes to arrears recovery.
Continued moratorium on residential evictions
As anticipated, on Friday 5 June 2020 the Housing Secretary, Robert Jenrick, announced an extension of Practice Direction 51Z until 23 August 2020. This extends the moratorium on residential evictions to 5 months in total, during which time possession proceedings can still be issued, but will be automatically stayed.
The Practice Direction applies across the private and social rented sectors. Its application is not restricted to cases of rent arrears caused by the coronavirus pandemic; it applies to all proceedings issued under Part 55, save for trespassers' proceedings which are issued against 'persons unknown'.
This move will no doubt be welcomed by those renters facing genuine financial hardship due to the pandemic, but perhaps less so by those impacted by anti-social behaviour, or by private sector landlords who are reliant on rents as a source of income and who may not benefit from mortgage payment holidays.
It is anticipated that there will be a considerable backlog of residential possession cases when the stay comes to an end and, with the County Courts already overloaded, there is likely to be a long wait for cases to pass through the system after 23 August 2020.
Robert Jenrick also announced that the government is working with the Lord Chief Justice to ensure that a pre-action protocol is in place for when the 'eviction ban' is lifted. There will be a duty on landlords to act in good faith and to investigate other solutions, such as flexible payment plans, to overcome arrears before issuing possession proceedings.
If you need advice on how to deal with residential tenancies and the options available to you, please contact Emma Salvatore or another member of the property litigation team.
Rent arrears recovery – investigate all the options
With two weeks to go until the June quarter day, landlords should consider now whether there are steps they could be taking in the coming weeks to protect their ability to recover arrears which have already fallen due or sums which may shortly go unpaid.
Despite the current restrictions on serving statutory demands and issuing winding up proceedings (summarised in our ninth bulletin) there may be other options for landlords, besides issuing Court proceedings for a debt claim. Landlords should be checking for rent deposit deeds, guarantors, former tenants (liable under an AGA or an "old" lease, being a lease or an agreement for lease entered into prior to 1 January 1996) or a former tenant's guarantor, known as a "former guarantor".
The terms of any rent deposit deeds should be reviewed to check whether a draw down can be made against funds held and "top up" monies demanded from the tenant to restore the rent deposit balance. If a guarantor is party to the lease, the contractual terms of the guarantee should be reviewed, and the guarantor's solvency checked, to see if this avenue of recovery can be pursued.
In the case of former tenants and former guarantors, notice needs to be served on the relevant party under Section 17 of the Landlord and Tenant (Covenants) Act 1995 within 6 months of the sums falling due in order to protect the landlord's right of recovery. It is important to note that if a former tenant or guarantor pays the sum demanded in a Section 17 notice, they will be entitled to take an overriding lease of the premises. Landlords should therefore ensure they only serve notice on parties whom they would be happy to have as a direct tenant.
Please get in touch with the Property Litigation Team if you need advice or further information on contractual recovery options.
(Not so) Flexible Tenancy: Croydon London Borough Council v Kalonga (2020) EWHC 1353 (QB) (Kalonga)
In this case, the High Court ruled that Croydon London Borough Council (the Landlord) could not end a 'flexible tenancy' before its contractual expiry date as the tenancy did not include an express forfeiture clause.
By way of background, since 1 April 2012, a local authority landlord has been able to grant 'flexible tenancies', rather than periodic secure tenancies. A 'flexible tenancy' is a species of a secure tenancy that must be granted for a fixed term of at least two years, although in most cases it should be granted for a minimum of 5 years. Unless the local authority either grants a new further flexible tenancy or seeks possession, a periodic secure tenancy will arise at the end of the fixed term.
During the fixed term, a landlord can recover possession by serving a valid notice seeking possession, establishing any grounds for possession that are available against a secure tenant, provided that the tenancy agreement contains a forfeiture or re-entry clause. In Kalonga, the Landlord had sought to recover possession during the fixed term on anti-social behaviour and rent arrears grounds. Unfortunately for the Landlord, however, the fixed term 'flexible tenancy' of five years did not include an express contractual provision granting the Landlord the right to forfeit the tenancy. As such, the High Court ruled that the Landlord was prevented from terminating the tenancy during the fixed term by any of the methods under section 82(1A) Housing Act 1985.
In the absence of the right to forfeit the tenancy during the fixed term, a landlord's options would be limited to suing the tenant for the unpaid rent or seeking an injunction if a tenant is in breach of the tenancy as a result of anti-social behaviour.
It is of note that the evidence before the Court suggested that 30,000 'flexible tenancies' were granted in England between 2014 and 2018, with the landlord in this case having granted over 2,400 'flexible tenancies'. The main take-away from the judgment is that granting such 'flexible tenancies' without including express forfeiture provisions will provide defaulting tenants with strong rights to resist possession during the fixed term. This will be a particular concern for those landlords who have granted 'flexible tenancies' which omit express forfeiture provisions, given the slim likelihood of agreeing with a tenant to include this as a variation. It is vital for 'flexible tenancy' precedents / templates to be updated promptly to include express forfeiture provisions.
The same principles arising in Kalonga are likely to apply to registered providers who have granted assured shorthold fixed term tenancies.
Insight from across the firm
- Building a Sector standard approach to ESG reporting: A webinar for the discussion and review of the Social Themes and Criteria
- Restarting joint venture development sites
- Trowers talks podcast: Isolation and older LGBT people
- One of the largest Sikh Gurdwaras in the UK has reinvented itself as an emergency food operation, delivering thousands of meals a day to NHS staff and others in need.
- Michael Jordan and the Jordan Brand have announced a $100 million donation to organisations dedicated to ensuring racial equality, social justice and greater access to education.
- A mystery window cleaner in Great Yarmouth has washed windows in over 700 properties, without charge, in a bid to help businesses "bounce back".