Property litigation weekly update - 2 October 2020


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This week's edition provides details of the extension to the Covid related insolvency enforcement restrictions under the Corporate Insolvency and Governance Act 2020 and case updates in relation to the Telecommunications Code and environmental liabilities in a terminal dilapidations claim. You will also find some snippets of positive news and links to further insights from around the firm.

Extension to Moratorium on Winding Up Petitions under the Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020 (the 2020 Act) gave businesses affected by the Covid-19 pandemic certain time-limited protections, originally due to be lifted after 30 September 2020.

In summary, under the 2020 Act a creditor is only able to have a winding up petition issued if it can satisfy the Court that there are reasonable grounds for believing that coronavirus has not had a financial effect on the company or that the facts/ground(s) relied on would have arisen even if coronavirus had not had a financial effect on the company. The Court can only make a winding up Order if satisfied that the company would be unable to pay its debts even if coronavirus had not had a financial effect on the company.

The 2020 Act also effectively introduced a ban on relying on statutory demands as a ground of insolvency justifying liquidation. Although they can still be served, they lack teeth since they cannot be used as a precursor to a winding up petition.

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 came into force on 29 September 2020, extending some of the protections afforded to businesses affected by the pandemic beyond the previous deadline of 30 September.

The provisions governing winding up petitions (and so by implication also statutory demands) are now extended to 31 December 2020.

The moratorium applying to termination clauses has been extended to 30 March 2021. Small suppliers will remain exempt from the obligation to supply until 30 March 2021.

The temporary modifications to the new moratorium procedure, which relax the entry restrictions and allow a company to enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months, have also been extended to 30 March 2021.

Telecommunications Code update - (1) EE Ltd (2) Hutchison 3G UK Ltd V (1) Edelwind Ltd (2) Secretary of State for Housing Communities (2020)

In a recent decision on a preliminary issue, the Upper Tribunal held that notices given under paragraph 31 of the Electronic Communications Code validly terminated the Claimant operators' Code rights before the contractual expiry date of the relevant Code agreements. This was because the term of the Code agreements had been brought to an end early by the termination by tenant break of the lease interest out of which the Code agreements had been granted.

The Claimants were operators of communications equipment on a rooftop site. The First Respondent was the freeholder (the Freeholder) and the Second Respondent (the Leaseholder) held a long lease expiring in 2027.

Two Code agreements were granted on 30 November 2002:

In the primary Code agreement the Leaseholder gave one operator (C1) the right to install and operate equipment until 29 November 2024. The schedules to this agreement prohibited C1 from assigning the agreement and also contained a break clause enabling the Leaseholder to bring the agreement to an end on 12 months' notice if planning permission were obtained for a development which could not proceed with the equipment in place.

By a secondary Code agreement (described as a licence) between the freeholder, the Leaseholder and C1, the freeholder gave consent to the Leaseholder to enter into the primary Code agreement, which would otherwise have been a breach of the Leaseholder's lease.

Under Schedule 3A paragraph 30 of the Code, such Code agreements do not end on their expiry date but continue until terminated in accordance with paragraph 31 by a notice given by a party to the agreement. However, such a notice is only valid if it expires later than the Code agreement would otherwise expire (i.e., you cannot give notice to terminate under paragraph 31 before the end of the term of the Code agreement).

On 31 March 2010, C1 purported to assign the primary code agreement to itself and another operator (C2).

In December 2019, notices were served on behalf of the Freeholder and the Leaseholder, under paragraph 31 of the Code, seeking to end the two Code agreements on 18 months' notice, due to a stated intention to redevelop. At the preliminary issue stage, the Claimants disputed validity on the basis that (i) the notices expired before the contractual term dates of the two Code agreements in 2024 and (ii) C2 had not been served.

The Leaseholder's lease contained a break clause, which the Leaseholder had exercised to take effect on 2 April 2021, although the Claimants were not informed of this when the notices to determine the Code rights were served. This meant that although those notices purported to terminate the Code rights before their original contractual expiry date in 2024, the termination date was in fact after the break date in the long lease. That being the case, as the Code agreements were derived from the Leaseholder's lease, they would (contractually) terminate when the lease was broken, even though this was earlier than their stated date of expiry in 2024 (on the basis that the "branch falls with the tree"). This meant that the date of termination of the paragraph 31 notices was therefore valid on the face of it, as it came after the Code agreements would otherwise come to an end.

The tribunal found that the Freeholder would not be bound by the secondary code agreement after the primary code agreement had determined, on the basis that there was nothing in the secondary code agreement which implied that the Freeholder should continue to be bound after the Leaseholder was not.

Both agreements were found to be licences and therefore the assignment to both Claimants was ineffective and service on C1 alone was sufficient.

It remains to be determined whether the Respondents grounds for termination (the intention to develop) can be made out.

Pullman Foods Ltd v The Welsh Ministers and another [2020] EWHC 2521 (TCC) (23 September 2020)

In a recent decision in the Technology and Construction Court, the Court was tasked with answering whether dangerous and hazardous materials, namely asbestos, needed to be made safe and removed from a property under the yield up provisions within a lease.

A lease was granted in 1972, which amongst other things provided that two interconnecting cold-store warehouses could be erected at the property. The construction was carried out in the 1970s. The lease also contained a tenant covenant that the property "be yielded up in good and substantial repair and condition to the satisfaction of the [Lessor]".

The lease was subsequently assigned to Pullman and due to the privatisation of the original landlord the reversion was eventually transferred to the Welsh Assembly and the site earmarked for regeneration. In 2013, the Welsh Assembly served notice under section 25 of the Landlord and Tenant Act 1954 to terminate the lease and gave notice to Pullman to reinstate the buildings on the site that had been constructed by Pullman's predecessors in title. Pullman and their contractors (BFS) then set out to demolish the cold stores and due (most likely) to this work asbestos was spread across the property.

It was held that the presence of the asbestos on the property, that was in damaged or deteriorated condition, meant that the property was not in good condition or repair as required by the lease. Although the Judge thought it most likely that the asbestos had been brought on to the property as a result of tenant works under the 1972 lease, he held that Pullman would have been in breach of its repairing obligation even if the asbestos had been present before the lease was granted, even though the presence of the asbestos was not caused by the tenant. Pullman was held liable for damages for breach of the covenant equal to the Welsh Assembly's cost of carrying out the necessary remediation works.

This case highlights the importance of due diligence prior to any transaction where there are repairing obligations, particularly where brown field sites or older buildings are involved. Developers will be well aware of the issues of environmental liabilities and contamination but this case acts as a reminder of the importance of full and proper enquiries when taking a tenancy, particularly one that contains potential reinstatement obligations.

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