Property litigation weekly update - 26 November 2020
This week's update provides a snapshot of two recent retail CVAs, the relaxation of formalities for the sale of flats in buildings without cladding and further regulations governing evictions and taking control of goods in residential premises.
Sale of flats in buildings without cladding - External Wall Survey no longer required
On 21 November 2020, the Government announced that owners of flats in buildings without 'cladding' will no longer require an External Wall Survey, known as an EWS1 form, to sell or re-mortgage their property.
The EWS1 form was introduced in December 2019 by the Royal Institution of Chartered Surveyors (RICS), Building Societies Association (BSA) and UK Finance as an agreed industry-wide process in relation to the valuation of high rise buildings. The intention was to help banks and lenders make informed decisions on lending where high rise properties (over 18 or more metres) were potentially at risk of fire safety defects.
However, a large number of lenders were asking for the EWS1 form to be completed for buildings of any height and where there were no known issues with the building's cladding, before they were prepared to lend on properties. With a limited number of surveyors and fire engineers being qualified to carry out the EWS1 survey and issue the EWS1 form certificate, combined with the country's lockdowns, thousands of homeowners have been unable to sell or re-mortgage their property.
The Government's agreement with RICS, BSA and UK Finance that the EWS1 form will not be needed on buildings where there is no cladding will come as welcome news and is intended to get the leasehold market moving again and provide certainty to over 450,000 homeowners who have reportedly been stuck in limbo. The Government has also announced a training programme costing nearly £700,000 to be delivered by RICS from January 2021 to train more assessors to carry out the EWS1 assessment and speed up the valuation process in cases where an EWS1 form is still required. An important further issue and practical obstacle is the availability of professional indemnity insurance for surveyors undertaking EWS1 assessments, which the Government's announcement says it is exploring ways to address.
The Age of CVA's
We reported on Company Voluntary Arrangements (CVAs) and how they work in last week's bulletin. With retail and hospitality CVAs continuing to be a particularly active area, we outline below some of the terms from two recent CVA proposals.
On 20 November 2020, C. & J. Clark International Limited, better known as Clarks, was given the green light by 90% of its creditors to approve entry into a Company Voluntary Arrangement (CVA). The retailer had recorded a £83 million loss in 2019 and sought to avoid the consequence of administration by proposing the CVA earlier in November. The CVA split properties rented by Clarks across the UK into 4 categories, A-D with differing stipulations per category. Landlords who found their property in Category A simply saw a change in how they were to be paid rent from fixed quarterly or annually payments to monthly payments. Category B landlords were left in more uncertain waters with the rent being calculated as a percentage of the monthly turnover, whilst Category C landlords were left with no rent payment at all. For the final group of landlords, Category D, the leases will automatically terminate 30 days after the CVA has been passed, provided no challenge is brought.
The recent increase in CVA's is not surprising given the current economic climate brought on by the COVID-19 pandemic. Nero Holdings Limited, better known as Caffe Nero, proposed its own CVA on 12 November 2020 that is due to be voted on by creditors next week. The company noted a loss of £110m sales between March 2020 and September 2020 and sought to better control rental payments through the CVA. Much like with Clarks' CVA, under the proposed terms Category A landlords are largely unaffected whilst Category B landlords see a shift from fixed rent to turnover-based rent. Although this CVA has not yet been passed, it provides another example of how companies countering the financial burden of reduced sales due to the Covid-19 pandemic are seeking to offset costs.
Legislation update: The Public Health (Coronavirus) (Protection from Eviction and Taking Control of Goods) (England) Regulations 2020 (the Regulations)
The above Regulations came into force in England on 17 November 2020 and apply to evictions and taking control of goods in residential properties.
The effect of the Regulations is that residential evictions have been paused between 17 November 2020 and 11 January 2021, save for actions against trespassers and some other limited exceptions identified below. Between this period it will not otherwise be possible to lawfully deliver a notice of eviction or execute a writ or warrant of eviction to a residential tenant unless (in relation to secure, assured or regulated tenants) they were in arrears equivalent to at least 9 months worth of rent as at the date the possession order was granted. Any arrears that have accrued since 23 March 2020 must be disregarded.
Depending on the type of tenancy, the exceptions where evictions may lawfully proceed between 17 November 2020 and 11 January 2021 include the following grounds; anti-social behaviour, trespassing, domestic violence or the death of an assured tenant.
Enforcement visits to residential premises to take control of goods are currently prohibited until 3 December 2020.
Insight from around the firm
- UK real estate investment – five key trends in UK real estate
- Webinar – trends in funds structuring nationally and internationally
- Podcast – placemaking and social value at Brent Cross town
- 6-year old Bridger Walker was surprised by a real life superhero - Captain America. Chris Evans, the actor behind Captain America, sent Bridger an authentic Captain America shield after Bridger stepped in between his younger sister and an attacking dog. Although he suffered 90 stitches, Bridger proved that real heroes do exist!
- Queen Elizabeth and The Duke of Edinburgh celebrated their 73rd anniversary last weekend. To mark the occasion, the Queen tweeted a picture from when the couple were in their 30's and shared 70 facts with the country on their over-half-a-century of marriage.
- The Shard London has announced the return of its Christmas lights display this year - set to launch on 26 November 2020 - which will pay homage to the brave NHS staff. In honour of the doctors and nurse who have worked tirelessly against the impact of Covid-19, the Shard will be lit with a commemorative blue and white theme.