Property Litigation weekly update - 14 May 2020
Following the rarity of a sun filled bank holiday weekend, socially distanced VE Day anniversary celebrations and much anticipated statements from Boris Johnson, we bring you a round-up of this week's property-related legal updates, along with some positive news and insights from around the firm.
The stay of possession claims: Arkin v Marshall 
On 11 May 2020, the Court of Appeal provided much need clarification on the stay of Part 55 possession proceedings under Practice Direction 51Z (PD 51Z) and how proceedings should be conducted as the Covid 19 pandemic continues. We previously reported on the "Practical effects of the stay on possession proceedings".
Considering a challenge to PD 51Z, the Court has confirmed the practice direction was lawfully made; it is neither ultra vires nor inconsistent with the Coronavirus Act 2020.
The Court's decision emphasises the purpose of the blanket stay under PD 51Z is to protect public health and the administration of justice generally. Going forward, the message is clear and unequivocal:
- Parties that are capable of complying with agreed Court directions should continue to do so;
- Parties can still agree directions on a voluntary basis and apply to the court to embody the agreed directions in an order, notwithstanding the stay;
- Parties that do not comply with agreed directions will be in default, however, a Judge cannot issue an order to enforce non-compliance whilst the stay remains in force. The Judge will no doubt take into account the conduct of the parties in relation to any directions agreed between them and deal with future directions (and possibly sanctions) accordingly.
During the stay, possession claims are not being dealt with on a normal case by case basis. A more blanket approach is being taken with the intention of reducing the pressure on the court system and the risk to public health. Judges should not lift the stay imposed by PD 51Z as this would undermine its whole purpose. A lift of the stay would only be granted in very extreme circumstances and is highly unlikely in most cases.
How are the Courts dealing with statutory demands? Shorts Gardens LLP v London Borough of Camden Council 
This case provides an interesting insight into how the Courts are dealing with winding up orders and statutory demands which are presented prior to the introduction of the much-anticipated Corporate Insolvency and Governance Bill. In this case the Court was unwilling to interpret Parliament's future intention in circumstances where the government has announced new measures but legislation has yet to be passed.
The Applicants argued that the temporary ban on winding up orders and statutory demands will have a wide application as the Government announcement stated "High street shops and other companies under strain…" and "any winding-up petition that claims the company is unable to pay its debts must first be reviewed by the court to determine why". The Applicants sought to provide new witness statements showing that both Applicants were under financial constraints due to Covid-19 and argued, whilst the Court had to make a decision based on the law as it stands, it could exercise its discretion as to whether it was just and equitable to grant an injunction.
Mr Justice Snowden in this instance stated:
- the proposed legislation in all likelihood will only be in relation to certain economic sectors and will only relate to statutory demands and petitions claiming arrears of rent – the latter being a key distinction as the case before the Court concerned business rates arrears rather than rent;
- there is likely to be a threshold test in regard to the restrictions (clarity is awaited);
- the applicants failed to provide financial information to demonstrate that they were unable to pay their debts due to Covid-19; and
- the Judge dismissed their arguments on the basis that the amounts owed were not rent and further the debts fell due prior to Covid-19.
This case shows that emergency measures are not a 'get out of jail free card'. Debtors who claim liquidity issues as a result of Covid-19 should raise this with their creditors as soon as possible and ensure they have sufficient information to support this assertion, if they wish to avoid a statutory demand or a winding up petition being progressed against them.
Unlicensed HMOs and strict liability offences
On 7 May 2020, a divisional court provided judgment in the joint cases of R (Mohamed and Lahrie) v Waltham Forest LBC et al and R (Mohamed and Lahrie) v Wimbledon Magistrates Court et al . The Court confirmed that operating and managing an unlicensed house in multiple occupation (HMO) contrary to section 21(1) of the Housing Act 2004 (the Act) is a strict liability offence (meaning the defendants' could be found guilty irrespective of their intention).
The facts concern Mr Mohamed (M) and his wife, Mrs Lahrie (L), who were managing various HMOs within the meaning of section 254 of the Act, and failed to apply for mandatory licences under Part 2 of this Act. On 6 January 2017, the Council presented a Schedule of Offences from the previous six months but not within six months of the day on which the offences had first been discovered. M and L brought a claim for judicial review of the Court's decision to issue a Summons based on the information provided by the Council, on the basis that:
- the Council failed to provide sufficient information to the Magistrates Court to enable them lawfully to discharge the Court's obligation when issuing the Summons;
- the offence under section 72(1) of the Act was not a continuing offence; and
- the proceedings were time barred.
After attempts by the defendants to judicially review further actions by the Council, the Court dismissed both claims. They were satisfied that the Council provided sufficient information to justify the issue of summonses and the Council had been right to treat this as a strict liability offence, which the Court confirmed was a continuing offence each day the HMO was not licensed. As a result, the information before the Magistrates Court could not be time barred.
This is an important decision clarifying the nature of an offence under section 72(1) of the Act. Any person who operates, manages or has control of a HMO and fails to obtain a mandatory licence from the Council will be committing a criminal offence, regardless of whether or not they were aware that the property was being used as a HMO.
In the ever evolving world of the (now, not so new) Electronic Communications Code and the Government's aim for the UK to be a world leader in superfast connectivity, the Telecommunications Infrastructure (Leasehold Property) Bill has completed its Second Reading in the House of Commons and is awaiting a date for the Committee Stage.
The Bill was introduced on 15 October 2019 further to the Government's 2018 Future Telecoms Infrastructure Review which identified several barriers inhibiting access to gigabit capable broadband. In particular, the review found that operators face difficulties providing services to blocks of flats as they require the landowner's permission to access the building.
The effect of the bill, if passed as currently drafted, is that a telecommunications operator would be able to apply to the Tribunal (following service of various warning notices) for an order that the freeholder of a multi-let property is required to give access so as to allow the operator to install a telecommunications service in the building (including in the common parts retained by the freeholder) where a tenant has requested an electronic communications service and the freeholder fails to respond to requests from the operator. Such access could only be ordered if the operator was responding to a request from a leaseholder that the service be installed.
If successful, the operator would be granted temporary access for a specified period of up to 18 months and during this time operators could seek to reach a more permanent arrangement with the landlord or apply to the Tribunal for permanent Code rights. If temporary access was granted landlords would be able to apply to the Tribunal for compensation from the operator in respect of any loss suffered as a result of the rights being granted.
It is currently envisaged that this process will only be available to operators where landlords of multi-let buildings do not respond to operators requests. Landlords will therefore need to take care to engage with operators if they are contacted in the event that this Bill becomes law.
Insight from across the firm
- The impact of Covid on private equity
- Tax implications of the temporary letting of new residential units
- Trowers Talks: Building beyond the lockdown - an investor developer view
In positive news this week
- Britain's biggest virtual garden party took place on Sunday to celebrate Garden Day. This involved flower-based crafting tutorials, story readings and a drinks party. Those that missed it can head to the GARDENDAYUK YouTube page to find recipes, flower crown tutorials and more from the event.
- With lockdown resulting in so many people turning their hand to a spot of baking, Warburtons have released their secret crumpet recipe for all to enjoy. Find the recipe here.
- Of course, last Friday marked the 75th anniversary of VE Day with celebrations including 103 year old Dame Vera Lynn joining in with a nationwide rendition of We'll Meet Again from her Sussex home.
- A member of the team (who shall go unnamed) used the bank holiday weekend to put the finishing touches on not just one, but two, Lego creations.