Property litigation weekly update - 13 May 2021
In this week's bulletin we report on the case of a landlord challenge of the New Look CVA, a case relating to an application for dispensation from Section 20 consultation requirements in service charge disputes and an update on the Fire Safety Act 2021 which received royal assent at the end of April. All this, alongside the recent insights from our colleagues around the firm and some positive news.
Landlords challenge to the New Look CVA: Lazari Properties 2 Ltd & Ors v New Look Retailers Ltd & Ors  EWHC 1209 (Ch)
Hot off the press, in a judgment released on 10 May 2021, the High Court has ruled against a group of New Look's landlords ("the Landlords") who challenged the retailer's company voluntary arrangement ("CVA").
As with many tenants in the retail sector, New Look struggled through the pandemic as a result of lengthy store closures. The company put forward proposals for a CVA and in September 2020 the CVA was approved by a majority of creditors. The CVA provided for a move to turnover-based rents at the majority of New Look's UK stores.
The landlords challenged the CVA on three broad grounds:
- From a jurisdictional perspective, in that it did not properly constitute a CVA or an arrangement as intended by insolvency legislation and that it sought to modify landlords' proprietary rights;
- There were material irregularities in the way in which the CVA was approved; and
- The Landlords were unfairly prejudiced by the CVA.
The Landlords argued that the CVA created different classes of creditors who were treated differently and who should, they contended, have been treated as separate classes and that there was not sufficient "give and take" between the parties.
The Landlords complained about issues with the calculation of claims for voting purposes and omissions and inaccuracies in the proposal document.
Finally they claimed that the CVA was unfairly prejudicial to the claims of a group of creditors as the majority of votes in favour of the CVA came from creditors unimpaired by the CVA, and the difference in impact between creditors who were affected was also very substantial.
The Landlords were unsuccessful on all three grounds. The Court disagreed with the Landlords' interpretation of the insolvency legislation and found that the differential treatment of creditors did not amount to the CVA being unfair.
The judgment is good news for tenants who have put in place or are considering restructuring options and shows that the Courts will take a pragmatic approach when looking to support the recovery of the retail sector during this time. On the other hand the case represents a further set back for crusading landlords hoping to stem the tide of ever more swingeing CVAs.
Service charges and an application for dispensation from consultation requirements: Aster Communities v Chapman & Ors  EWCA Civ 660
The Court of Appeal has held that courts may impose conditions upon a landlord when allowing an application for dispensation from consultation requirements under section 20ZA Landlord and Tenant Act 1985 (1985 Act).
In March 2016 Aster Communities (Aster), the freeholder of a development comprised of several blocks of flats, sent its tenants a notice of its intention to carry out works on the development. The notice listed numerous proposed works but did not specifically suggest the replacement of the balcony asphalt. Tenants were later provided with a paragraph (b) statement outlining the estimates of the works, again without reference to the replacement of balcony asphalt, although the priced specifications (which were available for inspection) did include provision for this work.
In January 2017 Aster applied under s27A if the 1985 Act for a determination in respect of on account service charges required from the tenants. Various tenants contested this application, relying on expert evidence to challenge whether the "full replacement of all balcony asphalt was reasonable". The FTT held that full replacement was unnecessary and, in any event, the proposed work had not been a part of Aster's section 20 consultation. In February 2019, Aster made an application for dispensation from consultation.
The FTT relied on the guidance set out in Daejan Investments Ltd v Benson  UKSC 14, concluding that whilst it was reasonable to grant dispensation to Aster, it would only do so "on terms that will remove possible prejudice to the lessees". The FTT imposed conditions on Aster (i) to pay reasonable costs of an expert nominated by the lessees to advise them on the necessity of replacing all of the balcony asphalt; (ii) to pay the respondents' reasonable costs of the application; and (iii) that the costs of Aster's application should not be recoverable through the service charge. Aster appealed initially to the Upper Tribunal who dismissed the appeal and then to the Court of Appeal In reaching it's conclusions, the Court of Appeal followed Daejan and the reasoning outlined by the FTT. Aster's appeal was again dismissed.
This case demonstrates that before making an application to dispense with consultation requirements, landlords ought to consider whether their tenants are likely to suffer prejudice as a result of the dispensation. Whilst it may be appropriate to dispense with consultation in certain circumstances, it is important to be alert to potential conditions that the court may seek to impose in doing so.
Fire Safety Act receives royal assent
The Fire Safety Act 2021 (the FSA 2021) received royal assent on 29 April 2021. Following Grenfell, the FSA 2021 amends the Regulatory Reform (Fire Safety) Order 2005 and together with a series of other changes to fire safety and building safety, aims to ensure that such a tragedy does not happen again.
A significant change brought in by the FSA 2021, is that it confirms the extent of the premises to which the 2005 Order applies. It clarifies that where a building contains two or more sets of domestic premises, the 2005 Order applies to the building's structure and external walls and any common parts (including the doors between domestic premises and common areas). It goes further to clarify that "external walls" include doors or windows in the external walls as well as anything attached to the exterior of those walls, including balconies. Secondary legislation will follow to bring this section of the FSA 2021 into force.
Another important point to flag is that the FSA 2021, as enacted, has omitted the proposed amendment to prohibit passing fire risk remediation costs on to leaseholders and tenants.
Insight from our colleagues around the firm
- Report: Reflections on the opportunities offered by the Government white paper on health and social care reform
- How strengthening of the Prompt Payment Code can help your business
- HR Law – May 2021 update
- Webinar: Property litigation in the pandemic
Positive news stories
- Mental Health Awareness Week – 20 inspiring people supporting the UK's wellbeing
- The wet and grey bank holiday weekend weather set a new clean energy record
- You can now adopt a gargoyle on Notre Dame to contribute to its preservation
- For the keen cyclists amongst us - you can now cycle the length of Cornwall