Posted Thursday 13th May 2021
The COVID–19 pandemic has had a significant effect on all facets of public, private and business life. Bricks and mortar “non-essential” establishments were ordered to close and measures were introduced by the Government, all of which have had a substantial impact on real estate litigation and the relationships between landlords and tenants. We have set out below a brief overview of some of the main issues that have affected real estate litigation.
We previously published a blog outlining the measures that were introduced by the Government to assist commercial tenants who were unable to pay their rent as a result of the pandemic. These measures include a moratorium on forfeiture for non-payment of rent and a moratorium on insolvency action preventing landlords (or any creditor) from presenting a winding up petition against a company that is unable to pay its debts due to the pandemic.
The latest extension to these measures means that they will be in place until 30 June 2021, although it is yet to be seen if the Government will extend the protections further.
It has launched a call for evidence in order that it can understand how landlords and tenants are responding to the build-up of rent arrears that have occurred as a result of businesses being unable to trade normally during the pandemic. The evidence will support its decision-making process on the best way to withdraw or replace the current moratorium on commercial rents after 30 June 2021, ranging from a phased withdrawal of the current restrictions to options that seek to protect viable businesses and jobs.
Measures have also been introduced to restrict a landlord’s ability to recover unpaid rent through the commercial rent arrears recovery process (CRAR). At present, if a landlord wants to pursue CRAR, a tenant must be in arrears of rent of at least 457 days which will increase to 554 days as of the 24 June 2021.
Despite landlords’ ability to recover rent being curbed, we have seen a recent increase in the number of landlords issuing court proceedings for money judgments as this is currently the only means available to them to recover unpaid rent from their tenants. Landlords are not restricted from pursuing guarantors or former tenants.
With the Government’s timeline for lockdown-easing staying on course, it is not yet clear whether any further extensions will be granted or any additional measures introduced. As things stand, come 1 July 2021, landlords will be able to pursue tenants for all unpaid rent by way of forfeiture or insolvency action without restriction.
A tenant’s liability for rent during the pandemic has been the subject of much debate over the past year. However, two recent cases have provided some clarity: New York Mellon (International) Ltd v Cine-UK Ltd and others [2021] EWHC 1013 (QB) and Commerz Real Investmentgesellschaft mbh v TFS Stores Limited [2021] EWHC 863 (Ch). Both cases concerned landlords seeking money judgments for unpaid rent during the pandemic.
The tenants put forward a number of arguments, including that the Government backed “Code of Practice” should restrict claims brought by landlords, that the national lockdowns temporarily frustrated the leases, and that tenants should be entitled to rely on the insurance taken out by landlords for loss of rent. Although the Court sympathised with the tenants, it nonetheless rejected all of the arguments raised and found in favour of the landlords in both cases.
Whilst each case will turn on its own facts, these two cases do provide some clarity on the position. We are yet to see a commercial tenant successfully argue against a contractual liability to pay rent by reason of the pandemic.
Prior to the pandemic, landlords were only required to give their tenants 2 months’ notice to vacate premises if they served a notice pursuant to section 21 of the Housing Act 1988 (“Section 21 Notice”). In an attempt to assist tenants who may be struggling to pay their rent, the Government temporarily increased the notice periods for Section 21 Notices to a minimum of 6 months’ notice.
On 12 May 2021, the Housing Minister, Christopher Pincher, announced that renters will continue to be supported as the pandemic restrictions ease and that longer notice periods will be in place until at least October 2021. The notice period for a Section 21 Notice will however be reduced from 6 months to 4 months from 1 June 2021, which will be welcome news for landlords.
The notice periods under section 8 of the Housing Act 1988 have also been temporarily increased. These increases have however been limited to help protect those landlords with problematic tenants, including those involving anti-social behaviour, domestic abuse and rent arrears exceeding 4 months.
The pandemic has also had a significant impact on residential possession proceedings.
There is currently a stay in place on the enforcement of all writs and warrants of possession until 31 May 2021. Whilst it is possible for landlords to obtain possession orders, they are presently unable to enforce them. On 12 May 2021, the Housing Minister however confirmed that the stay will not be extended beyond 31 May 2021. Bailiffs have however been asked not to carry out an eviction if anyone living in the property has COVID-19 symptoms or is self-isolating.
There are some exceptions, including where the tenant has engaged in anti-social behaviour or there are more than 6 months’ accumulated rent arrears. In these circumstances, a landlord can make an application to Court to rely on one or more of the exemptions so that the eviction can proceed.
The stay on enforcement action has been in place for a number of months and we therefore anticipate that there will be a considerable backlog of evictions for bailiffs to work through that will inevitably delay matters further.
If you require any assistance in relation to a property dispute or anything covered in this article, please contact Daniel Swimer on +44 (0) 20 7307 2306.
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
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