Property litigation weekly update – 28 May 2020

This week's bulletin is packed with further comments on the new Corporate Insolvency and Governance Bill, compulsory electrical safety checks, recent case law, advice on without notice injunction applications and some positive news keep us grounded in our tenth week working from home. The Property Litigation team remain on hand to assist with property-related legal matters.

Corporate Insolvency and Governance Bill – further update

The UK government has published its Corporate Insolvency and Governance Bill with the aim of giving companies "breathing space" and avoiding terminal insolvency. Listed for its second reading in the House of Commons on 3 June, if passed in its current form it will implement previously announced insolvency reforms, as well as temporary measures to assist with corporate governance during the Covid-19 pandemic. We reported on measures restricting the use of statutory demands and winding up petitions in last week's bulletin. Some other key measures include:

Company moratorium

  •  Insolvent companies (not yet subject to a formal insolvency process) or companies likely to become insolvent can file papers at Court to obtain a 20 business day moratorium to explore a rescue plan whilst protected from creditor action. The moratorium can be extended for a further 20 business days, without requiring creditors' consent, and further beyond this with creditor consent. Debts falling due during the moratorium (such as rent accruing on a daily basis, similar to "rent as an expense" in an administration) must be paid and this will need to be closely monitored.
  • Even a company against whom a winding up petition has been presented, can seek a moratorium, subject to the additional step of a Court application being required. However, within the first 30 days of the Act having been passed, the need for a Court application is to be suspended and the moratorium can be obtained by filing papers at Court with the requisite statements from Directors and the Monitor (details below). There is likely to be a surge of companies relying on the moratorium towards the end of the 30 day period, this being the time the restrictions on winding-up petitions are due to be lifted and companies would otherwise be exposed to liquidation instigated by creditors.
  • The moratorium will be overseen by a Monitor who must certify to the Court, on the first application and each extension, that he / she believes it is likely obtaining a moratorium will result in the rescue of the company.

New restructuring plan

  • A new restructuring plan is to be introduced which is modelled against the existing "Scheme of Arrangement" (a statutory procedure for a company to restructure its debts) but with the addition of the ability to "cram down" across classes of creditors. This means that dissenting classes of creditors could be bound by the restructuring plan, if the measures are sanctioned by the court as "fair and equitable" and supported by at least one class of creditors with a financial interest in the proposals.
  • There will be no financial entry conditions which mean that both solvent and insolvent companies can propose a plan.

Termination clauses

  •  Under the new measures, all company suppliers are prohibited from exercising contractual rights to stop supplies by reason of the company's insolvency where the supplies continue to be paid for. The Bill also prevents suppliers from amending the contractual terms in order to force increased payments from the struggling company. It will be important for suppliers of goods and services to take advice if they might want to terminate a contract on grounds of a company's insolvency.

The Bill is wide ranging and further implications are covered in this insolvency update.

Without notice injunction applications during the Coronavirus pandemic

Ordinarily, when a social housing landlord needs to make an urgent without notice injunction application under the Antisocial Behaviour Crime and Policing Act 2014, as a result of the violent and alarming behaviour of a tenant, they will attend their local County Court for a counter appointment and thereafter for a hearing before a judge. At present, quite clearly, this is not possible.

An application for a without notice injunction is therefore made electronically to the Defendant's local County Court. Communication with the Court at this stage is key as some Courts are closed, some are staffed only ( i.e. there are no judges to hear matters) and some are open with judges sitting.

The Court will not grant a without notice injunction lightly and evidence will need to be put before the Court of the fact that individuals (for example, the Defendant's neighbours) need the protection of an injunction before papers are served on the Defendant.

Once the papers have been issued, the Court will arrange a telephone hearing. However, some Courts have simply been dealing with the matter as if it is a paper application and have made orders without the need for any such hearing.

Once an order has been made, the Court will email the sealed copy for service and it is this copy that can be printed off and served. Wherever possible, the papers still need to be served personally and process servers are still, in general, operating. However, Courts are taking a pragmatic approach and are more willing to make orders for alternative service, which will enable papers to, for example, be posted through a Defendant's letter box.

Electrical Safety Checks for Private Residential Tenancies

On 1 June 2020 the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 come into force. All private landlords of residential tenancies in England commencing on or after 1 July 2020 will be required to have an electrical safety inspection and condition report (EICR) carried out by an appropriately qualified person, and then provide a copy of that EICR to the tenant before they occupy the property. Where a report identifies further investigations or remedial works, the landlord has 28 days to complete those recommendations.

The inspections must be undertaken at 'regular intervals', meaning not more than 5 years. A new inspection and replacement certificate must be arranged before expiry, and any updated certificate must be given to the tenant.

With regards to existing tenancies, landlords have until 1 April 2021 to carry out the first inspection and testing, providing a certificate to the tenant within 28 days of completion. .

Enforcement is by the Local Authority ordering remedial action or urgent remedial action. The penalty for breach is a fine of up to £30,000. It is not clear whether failure to comply will prevent a landlord from serving a section 21 notice; this may be a purposeful omission given the intention to end section 21. There has also been no report to date that the Regulations will be postponed as a result of Covid19 so private landlords are advised to take 'all reasonable steps to comply'.

Dhillon v Barclays Bank plc [2020] - refusal to grant rectification in 'exceptional circumstances'

Mrs Dhillon had originally been a secure tenant with a right to buy the relevant property in London E5, but could not afford the property price of £167,000. In 2002 her husband forged her signature first on a transfer from Hackney Council to Mrs Dhillon and then on a second transfer to a company he controlled ("CEL"). CEL charged the property to Woolwich plc (now Barclays Bank).

CEL was later dissolved and struck off the Register of Companies, and the freehold was vested in the Crown as bona vacantia. The Crown disclaimed the property in 2009 and Mrs Dhillon applied for a vesting order which was granted in 2010. This resulted in her registration as freehold proprietor of the Property, subject to the charge.

Mrs Dhillon then issued proceedings seeking rectification of the Land Register under Schedule 4 to the Land Registration Act 2002 to remove the charge on the basis that it derived from the fraudulent transfer to CEL. The property was by this stage worth over £1,000,000, and the charge over £650,000.

The Court of Appeal upheld the judge’s view that the Land Register should not be rectified because there were “exceptional circumstances” under paragraph 3(3) of Schedule 4 to the Land Registration Act 2002 on the basis that:

  • Rectification of the Register would create a windfall for Mrs Dhillon. It would give her the unencumbered freehold of a million-pound property she had never owned and could never have afforded.
  • Rectification would put her in a much better position than she would have been in had the fraud not taken place.

Letter to social housing tenants

On 18 May 2020, the Minister of State for Housing, Mr Pincher, wrote an open letter to all social housing residents (the Residents) in England following the Prime Minister's announcement on 10 May 2020 in relation to the COVID 19 lockdown restrictions. The letter provides the Residents with a number of assurances with the focus being on their 'safety, security and wellbeing'. The letter arguably provides these assurances on behalf of the landlords and we have reviewed the pertinent points below.

In terms of the safety of the Residents, the letter details measures to ensure Residents are kept both safe and adequately supported.

We have briefly summarised the safety measures:

  • Maintenance and Repairs – the letter notes that as the lockdown measures are eased, landlords should resume routine maintenance tasks. External maintenance services will resume and any internal planned maintenance 'will only take place in homes where residents are not shielding or self-isolating'. It also states that all works completed will be carried out at a safe distance and following the relevant procedures.
  • Gas safety checks – the letter states that landlords 'should make every effort to abide by statutory safety obligations, such as annual gas safety inspections'. Gas safety checks are encouraged to take place, save for those Residents who are shielding or self-isolating. In those instances arrangements must be made on an individual basis taking into account information such as the factors of the Resident, maintenance history and date of the last gas safety check. We reported in more detail in our seventh edition.
  • Building safety – works to make buildings safe (such as cladding removal) remains a 'top priority for the Government'.
  • Tenants seeking to move home – legislation has been changed and those who wish to move can now look to do so though onus is put on the importance of reviewing the relevant guidance.

The remainder of the letter is focused on pastoral support available for Residents such as local tax support, wellbeing support and support for extremely vulnerable people and domestic abuse victims. As lockdown measures continue to be alleviated, landlords must consider their Residents and their duties in relation to them. Although none of the above assurances, in bullet points, extend beyond a landlord's contractual or statutory obligations, Mr Pincher's letter is a sign that works are expected to resume as lockdown restrictions ease.

Insight from around the firm

Back to the future (of work) – hear our Employment team's webinar

New payment and reporting deadlines for CGT

A reminder on chancel repair liability

This week's positive news

  • Captain Tom Moore awarded knighthood for raising more than £32m for NHS charities by completing 100 laps of his garden before his 100th birthday in April.
  • On 26 May 2020 Costa Rica became the first Central American country to legalise same-sex marriage.
  • Harry Potter author, JK Rowling releasing new story, The Ickabog, for free on the web.
  • The number of women running America's largest corporations has hit a new record high