Property litigation weekly update – 25 June 2020
After another week of significant announcements for landlords and tenants, we bring you a snapshot of the latest updates, along with the usual positive news.
Further halt on eviction of business tenants
In March 2020, the Government sought to provide some protection to tenant businesses by the introduction of provisions under section 82 of the Coronavirus Act 2020, preventing landlords from enforcing rights of re-entry or forfeiture against relevant business tenants for non-payment of rent during the 'relevant period'.
The moratorium initially meant that landlords were unable to forfeit a commercial lease on grounds of rent arrears from 26 March until 30 June 2020.
Perhaps in response to calls from trade bodies, the Government has announced that it will extend the relevant period to 30 September 2020, preventing landlords from forfeiting commercial leases on grounds of rent arrears over the summer months.
The Government also announced the extension of temporary measures applying to statutory demands and winding up petitions (reported on here) to 30 September 2020. These measures are contained in the Corporate Insolvency and Governance Bill 2020 which is working its way through parliament, however, the Court has had regard to the draft legislation, as noted in last week's bulletin and our recent article.
It is an equally difficult time for landlords with limited cashflow anticipated. Court proceedings to recover arrears remain an option but this is often not an attractive, nor a quick route. The Government are encouraging constructive discussions between the parties under the new Code of Practice, as reported below. We are also assisting clients to agree re-gears and rent concessions in order to alleviate the immediate pressure on tenants in return for longer term gain for landlords (such as an extension of the lease term or the removal of tenant break rights). Please do contact us if you would like to discuss these options.
Commercial property code
The Government led a steering group of leading bodies in the property sector resulting in the issue of a voluntary "Code of Practice for commercial landlord and tenant relationships during the COVID-19 pandemic". The Code was published last week and sets out best practice for rent concession arrangements. Trowers provided legal input to the steering group during the Code's formulation.
The Code of Practice applies to commercial leases held by businesses which have been negatively impacted by the Covid-19 crisis. It is intended to encourage landlords and tenants of such properties to come together to negotiate affordable rental agreements. The code provides recommended best practice which is supported by major industry bodies and it is hoped this will provide a point of focus for struggling businesses. It is expected that the hospitality, leisure and parts of the retail sectors in particular are likely to have most need of it, given the significant financial impact of the lockdown on those businesses.
Our article on the Code, with answers to FAQs, is available here and the new Code is set out here.
Pause for thought in residential lease extension claims
A recent County Court case saw a close run consideration of the exercise of lease extension rights under the Leasehold Reform, Housing and Urban Development Act 1993. Lupin Limited v 7-11 Princes Gate Limited & Princes Gate Partnership LLP (unreported, heard 31 March 2020) involved the service of a Section 42 notice where an overriding lease of the flat had been granted, this overriding leaseholder being held to be a landlord for the purposes of the 1993 Act, in addition to the freeholder. Although in this case the notice was served on the freeholder later than on the overriding leaseholder and in a separate document, the notices were held to be valid.
A secondary issue to the case was that the sub-lease of the flat contained a covenant that the landlord would not build on the roof, however, the overriding lease did not contain this covenant. The issue before the Court was whether this covenant restricting building could be excluded from the new extended lease claimed under the 1993 Act. The Judge held that if the covenant were not included in the new lease a landlord could evade such clauses through the grant of overriding leases, this was seen as contrary to the intention of the 1993 Act. An alternative argument was rejected that the restrictive covenant became an appurtenance to the flat, on the basis the covenant was not noted on the freehold title separately from the leases themselves.
Permission has been given to appeal to the Court of Appeal, with the above points giving pause for consideration when making new lease claims in the meantime.
Good news for Landlords on Gas Safety
On the 18 June 2020, the Court of Appeal handed down the long awaited judgment in the case of Trecarrell House Limited v Patricia Rouncefield  EWCA Civ 760. In a two-to-one majority, the Court of Appeal have allowed the appeal of the landlord, Trecarrell House Limited, and held that where a landlord has failed to provide an assured shorthold tenant with a gas safety record (GSR) prior to occupation, it is not precluded from serving a section 21 notice. You can view the full article here.
What's waiver behaviour?
In Faiz v Burnley Borough Council 2020, the tenant breached the lease by sub-letting on 1 August 2017. The landlord issued demands for insurance (reserved as rent) on 26 September 2019 and first became aware of the breach on 18 October 2019.
On 30 October 2019, the landlord served section 146 notices in relation to the sub-letting breach stating this was incapable of remedy; it then proceeded to forfeit on 22 November 2019. However, a revised invoice for insurance rent had been issued and payment accepted by the landlord after it became aware of the tenant's breach and before the forfeiture. The revised demand limited the sum claimed to the date the breach was discovered, to avoid demanding payment for the period following the breach.
The Judge held that that original demand was issued at a point when the landlord was not aware of the breach and the revised demand only sought payment of insurance due to the date the breach was discovered, so neither demand waived the right to forfeit, nor did the landlord's acceptance of payment as, the payment related to a period up to, but not after, the breach.
A crucial point was the extent of the landlord's knowledge when making a demand for rent. Having elected to forfeit and communicated this to the tenant, the landlord should not do anything, when considered objectively, which could be regarded as being consistent with the continuation of the lease. Landlords should act cautiously if seeking to forfeit and avoid taking steps which may give rise to waiver arguments that are time consuming and costly to explore.
Insight from our colleagues around the firm
- At the centre of everything – resident engagement in the building safety game
- Report – resilience and recovery through micro-innovation
Good news stories
- Astronomy discovery: Scientists, including scientists in Cardiff, have discovered "black neutron stars" a new astronomical object that is likely to change our understanding of certain aspects of astronomy.
- Drive-in concerts: Live Nation are organising a series of outdoor concerts from mid-July until September with Birmingham, Edinburgh and London having been identified as the first locations.
- Lifting of certain lockdown restrictions this week: following the Government's announcements for England this week mean the relaxing of the 2m rule and guidance which will allow pubs, hotels and other businesses to open safely from 4 July 2020.