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COVID-19 Real Estate: Landlord’s Remedies for Tenant rent arrears – the “Quadruple Lock”

  • Market Insight 25 septembre 2020 25 septembre 2020
  • Royaume-Uni & Europe

  • Coronavirus

Landlords’ rights to repossess their premises or take other enforcement action (like seizing goods - Commercial Rent Arrears Recovery “CRAR”) when their tenant has not paid rent have been severely restricted since before March 2020. The restrictions have been fourfold in nature – providing for a quadruple lock .

Last updated: 25/09/20

The Coronavirus Act 2020 has prevented a landlord relying on any contractual right to forfeit or repossess their premises (by court proceedings or peaceable re entry). Proceedings already or subsequently issued seeking possession (and possession orders already made) under the Civil Procedure Rules (CPR) have been subject to a stay. CRAR has been restricted by in effect quarterly increases in the number of days of arrears of rent required to be due until an enforcement officer may seize the goods of the tenant. The ability to present winding up petitions to the Companies Court based on statutory demands or upon unpaid debts (whether rent arrears or otherwise) has likewise been restricted and more recently can only be pursued in very exceptional circumstances where there is incontrovertible evidence that the company was in no way affected by Covid-19 and that the debt would have arisen  notwithstanding. This quadruple lock means landlords only remedy is to commence court proceedings for debt which may be defended by its tenant due to not being able to trade during the lockdown and other circumstances. Landlords and tenants are however encouraged to negotiate and reach compromises – see the Code of Practice (June 2020) for commercial property relationships during the Covid-19 pandemic.

Business Property – Forfeiture and CRAR

The government has last week announced the continued protection for business tenants from eviction by their landlords for rent arrears until the end of 2020. Similarly, the number of days of arrears of rent required to be due until an enforcement officer may seize the goods of the tenant has been extended to 276 days’ rent where the notice of enforcement is given on or before 24th December 2020 and 366 days’ rent where the notice of enforcement is given on or after 25th December 2020.This will help those businesses remain in their premises without the threat of eviction or CRAR for the rest of this year, potentially giving them the opportunity to rebuild their businesses over the autumn and Christmas period. The government has again made clear that where businesses can pay their rent, they should do so and that this further extension is aimed at those businesses struggling the most as a result of the pandemic, social distancing and national and local lockdown measures.

The Master of the Rolls “Overall Arrangements”

Perhaps in not the most joined up exercise (both in terms of timing and otherwise) and quite separately to these government measures on 16 September, the Master of the Rolls issued a 16 page document entitled the “Overall Arrangements” setting out how the courts generally propose to deal with possession proceedings both in respect of business and residential properties.

The measures recognise that the legal system faces very considerable pressure due to the backlog of current possession and other claims which were stayed or not moved forward during the early part of the pandemic, a pent up demand of new claims waiting to be issued and significantly reduced availability of court time, space and Judges due to necessary social distancing measures.

These are the headlines:

Existing Possession Cases 

Existing claims brought before 3 August 2020 will not automatically be listed for a hearing, re-listed or referred to a judge unless and until a party files and serves a “Reactivation Notice” confirming that they would like their case to proceed. This may be done at any time from 21 September 2020 until 29 January 2021. After 29 January 2021 new proceedings would be required rather than a Reactivation Notice.

Starting New Possession Cases and All Other Cases

New possession claims should not be started without careful efforts to reach a compromise and without strict compliance with Pre-Action Protocols. 

Hearings

Hearing dates will not now be fixed when the claim form is issued and the standard period of 8 weeks between issue and hearing will no longer apply. Efforts will be made, where possible to lump certain types of cases (mortgage cases, private landlords etc) together on the same day. The parties will be offered a physical hearing for substantive hearings only in court centres where social distancing is possible in accordance with Public Health England guidelines (with limited exceptions).

Special measures for Covid

When either the claimant or the Defendant face particular hardship as a result of Covid-19 the case will be prioritised. The claimant has a duty to set out what knowledge the claimant has as to the effect of the pandemic on the defendant and dependants. 

Covid-19 Case 

Any defendant or private claimant is entitled to request that the case is Covid-19 Case marked so long as they provide specified information, including brief details of the particular hardship either of them is facing or has faced.  A Judge can also mark a case as a Covid-19 Case.

Prioritisation

Judges will consider what cases should be dealt with first.  Serious prejudice to a landlord (for example where there is 1 year's worth of arrears) will be dealt with first where possible – meaning less serious cases face another layer of delay.

Pre- hearing review

Judges will review all possession cases save accelerated possession/trespasser cases with the claimant being required to file a full bundle for the Judge 14 days in advance of the pre hearing review.  On this review the Judge may make any number of directions, including directing the parties to a mediation pilot, issuing directions, requiring the claimant to file further information, directing defendants to non means tested free of charge legal aided advice and assistance, or possibly even striking out the claim. Once the review has been completed, a 15 minute hearing will be listed at which judgment may be given or further directions may be made to continue the case.

Enforcement

The guidance makes very clear that claimants cannot expect enforcement of any possession orders to take place quickly.  The practice of applications to transfer cases to the High Court for enforcement is discouraged and will no longer be prioritised. Requests for stays of execution or adjournments by defendants are likely to be given a sympathetic ear. In addition, bailiffs will be unable to enforce any evictions in local lockdown areas and no evictions will take place over the Christmas period.

The Corporate Insolvency and Governance Act 2020 extended!

The fourth element of the Quadruple Lock, the Corporate Insolvency and Governance Act 2020, entered force on 26 June 2020 and (in respect of property disputes) restricts any Statutory Demands served for the purpose of a Winding Up Petition during the Relevant Period (previously ending on 30 September). Creditors are also prevented from issuing winding up petitions unless (a) Covid-19 has not had a financial effect on the company, or (b) the facts giving rise to the right to present a petition would have arisen even if Covid-19 had not had a financial effect on the company (a very high bar). 

On 24 September 2020, the Government laid before parliament the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020. These regulations will enter force on the 29th of September 2020, extending the fourth element protections that were due to expire on 30 September 2020 until 31 December 2020 in order to give businesses "much-needed breathing space during the coronavirus (COVID-19) pandemic".

As the fourth element will now be extended, then failing a negotiated resolution of any arrears landlords’ only court remedy will be a debt claim based on the arrears of rent.

What does all this mean?

  • Taken as a whole, the very clear messaging is:
  • The court expects landlords and tenants to resolve their disputes where possible and not to trouble the court
  • There will be no rush to allow existing claims to be heard swiftly
  • New possession claims face a long run to get to a hearing

Although it's stated that efforts are being made to ensure access to the courts, it's clear that fewer courts will actually be open for physical hearings than there were before the pandemic started – which in and of itself means that cases will be further delayed. It's very clear that Judges are going to be highly sympathetic to residential tenants who have found themselves in difficult circumstances as a result of the pandemic.  Whilst the guidance concedes that landlord claimants may also be facing difficulties, it seems very probable that when balancing issues of hardship, the courts are likely to favour defendant tenants. All in all, it is going to be harder, slower and likely more expensive for landlords to obtain possession of residential property. 

Collection of rent by court proceedings will not be a short process, particularly if the tenant enters a defence. Corporate tenants who may have been contemplating CVAs have been granted further breathing space to organise themselves and compromise/ or restructure arrears. It will be interesting to see if the Government is prepared to offer a financial incentive to landlords and tenants to encourage them to reach much needed compromises. 

Fin

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