Property litigation weekly update – 21 May 2020
As we approach another bank holiday weekend, we have put together our ninth weekly bulletin including legal updates and a news flash on the Corporate Insolvency and Governance Bill revealed yesterday. As always, escapism is offered through some positive news.
News flash: Corporate Insolvency and Governance Bill
The much-anticipated draft legislation to document the restrictions on the use of statutory demands and winding up petitions is broad reaching. Whilst the measures were announced to "protect the UK high street from aggressive rent collection and closure", the Bill as currently drafted has the following far-wider effects:
- It applies to all creditors, not just landlords, seeking to take action against a company;
- The restrictions catch statutory demands served from 1 March 2020 to 30 June 2020 and winding up petitions presented from 27 April 2020 to 30 June 2020, as previously announced. If the legislation is not enacted by 30 June, the measures will last for a month after the Bill becomes law.
- Creditors are prevented from issuing a winding up petition based on a statutory demand issued in the above window.
- A creditor cannot present a winding up petition on the ground a company is unable to pay its debts unless the creditor has reasonable grounds for believing i) coronavirus has not had an effect on the company; or depending on the ground ii) the facts would have arisen even if coronavirus had not had a financial effect on the company or that the relevant ground would apply even if coronavirus had not had a financial effect on the company –insolvency measures taken against companies for loan covenant breaches that pre-date the virus are likely to continue.
- Whether coronavirus has had a “financial effect” on a company depends “if (and only if) the company’s financial position worsens in consequence of, or for reasons relating to, coronavirus". It will be important to review the wider context for a company's insolvency to determine whether pre-coronavirus factors are the catalyst and the die was cast before the virus took hold. Clear evidence will be required as the Court's powers to make a winding up order have been tightly constrained.
- Creditors who have reasonable grounds (as above) are required to state the "unless" provision applies to their petition and, even then, advertisement of the petition is restrained until the Court has determined it would be able to make a winding up order. A potentially lengthy process in order to get a petition off the ground.
- Winding-up orders already granted (on or after 27.4.20) could be unwound, with a company being restored to the register, if the restrictions would have prevented the winding up had they been in force at the time. It is not clear how this will work in practice…
- The bill also sets out the detail of the new moratorium process for solvent companies, which is likely when enacted to have significant ramifications. More to follow.
79% of retail landlords consider Covid-19 will permanently change lease terms
Colliers International surveyed a large number of retail owners and found that a significant majority believe the pandemic will bring permanent changes to how retail property is leased. Much of this change will be driven by use of data although different stakeholders will need to share information in order to achieve mutual benefits.
Metrics such as footfall, trading turnover and how physical shops help to generate online sales will have a significant influence on rent levels. More than 40% of landlords polled said that in future they would be more likely to consider such factors when determining the rent. Colliers considered that the use of large relevant datasets would lead to greater precision in the pricing process to the benefit of both landlords and retailers.
However, the survey showed that many landlords are not yet in a position to access or use such data to create a new leasing methodology. The report also highlights the potential brake on this innovation where landlords and tenants do not share data with each other and called for further cooperation in this regard.
Residential valuation and enfranchisement rights
The current situation with lockdown has caused uncertainty in the property market, which in most sectors is negative. However, should you be seeking to extend or enfranchise a residential lease, now may be a good time to serve notice on your landlord.
Exercise of enfranchisement rights freezes the valuation date and negotiations on price in times of a slow market can be advantageous as leaseholder. Although leasehold reform has been on the horizon for some time now, lease terms continue to run down and many leaseholders will need to act to maintain the value of their asset through exercise of rights.
Should you need further information or referral to a valuer please contact our Enfranchisement team.
New accelerated possession claim form
From 6 April 2020, there is a new claim form that must be used when issuing a claim under the accelerated possession procedure. The form is substantially longer than the previous version but it does allow you to skip certain questions based upon your given answers. The changes bring the form up to date with the various restrictions imposed on the section 21 procedure and also the updates on prohibited payments under the Tenant Fees Act 2019.
Whilst this may be of no immediate concern for landlords due to the current moratorium on possession proceedings, now may be a good time to gather all the documentation required including copies of gas safety records and the Energy Performance Certificate as these must be attached to the claim form. This not only includes a copy of the gas safety record provided to the tenant before occupation but all copies provided throughout the tenancy.
It is unclear why all copies must be provided given that the Gas Safety (Installation and Use) (Amendment) Regulations 2018 only requires landlord to retain evidence of the gas safety check until the appliance has been checked on two further occasions (or for two years where the appliance has been removed) but it is clear that the Courts are gearing towards a higher level of information from landlords before granting future possession orders under section 21.
Duval v 11-13 Randolph Crescent Ltd  UKSC 18
We provided an initial report on this Supreme Court case in last week's bulletin and now expand on this. The Supreme Court has handed down judgment in a case that deals with restrictive covenants in residential leasehold property.
Duval was the tenant of two flats at 11-13 Randolph Crescent. All tenants of the building held 125 year leases on similar terms. The leases contained an absolute covenant prohibiting tenants from cutting into walls or ceilings. The leases also contained a landlord covenant that, subject to payment of the landlord's costs, the landlord would enforce covenants in the other leases at the request of tenants. A tenant sought a licence to cut into a load bearing wall, which the landlord was willing to grant, despite the absolute covenant.
The Court held that that it was an implied term that a party, in this case the landlord, who undertakes a conditional obligation such as to enforce covenants in other tenant's leases may, depending upon the circumstances, be under a further obligation not to put it out of its power to discharge the obligation if the contingency arises.
The effect of this judgment will be felt in the residential property market and the limitation this places on works envisaged by prospective buyers may cause a decrease in the value of a leasehold interest. Further, this case goes beyond just alterations covenants and can be applied to any absolute covenants. It may further apply to qualified covenants in leases of multi-let buildings where a covenant is not strictly complied with and a landlord waives the breach, for example through the grant of retrospective consent to alter, potentially leaving the landlord open to a claim from other tenants.
Telecoms and 5G conspiracy theories
Following press reports of masts being damaged and telecoms engineers threatened, we include a Trowers Talks update from Corporate Partner, Amardeep Gill, Trowers talks: 5G and the coronavirus conspiracy.
This week's positive news
- International Nurses Day – The annual celebration on 12 May took on added significance this year in light of the tireless work the nursing profession is doing to care for patients during the Coronavirus pandemic. Many marked and celebrated the day including members of the royal family who spoke to nurses in the UK and across the Commonwealth to thank them for their service.
- Cranes reunite Belgian families with elderly relatives - A Belgian maintenance company is using its fleet of cranes to reunite families with relatives living in high-rise care homes. Residents of nursing homes have been isolated from their families for weeks to protect them from Covid-19, and while those living on ground floors have been able to chat to loved ones through windows, until now, this hasn’t been possible for residents living higher up. What an 'uplifting' idea!
- Safety First – As at 13 May, there have been no recorded pedestrian deaths as a result of road accidents in New York City for 58 days! This is the longest period since the city started recording fatalities in 1983.
- African tailors sewing face masks to halt coronavirus - African Masks, a non-profit organisation supported by crowdfunding, employs tailors to sew face masks, which are distributed for free in impoverished communities in the Democratic Republic of Congo, Kenya, Senegal, Benin and Nigeria. “We are using local skills – and providing some jobs during a tough economic time,” said Emilie Serralta, a humanitarian worker and founder of African Masks.