25 September 2020
Landlords obtaining possession
Since the outbreak of the COVID-19 pandemic, the Government has introduced several measures to relieve financial pressure on commercial tenants. Despite these measures, a tenant’s obligation to pay rent remains unaffected and it is instead the landlord’s ability to enforce its right of re-entry or forfeiture that has been temporarily restricted.
Section 82(1) of the Coronavirus Act 2020 (“the Act”) provides that a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period.
The relevant period began when the Act came into force on 26 March 2020 and was initially defined as ending on 30 June 2020 (which was later extended to 30 September 2020). However, on 15 September 2020, further Regulations extended the relevant period to 31 December 2020.
Unless the relevant period is extended again, on 1 January 2021, landlords will be able to enforce a right of re-entry or forfeiture for unpaid rent that became due during the relevant period.
Therefore, it may be sensible for tenants that have not paid March, June and/or September 2020 quarter’s rent to consider entering into discussions with their landlords in advance of the expiry of the relevant period. However, tenants should bear in mind that any rent concessions are entirely at their landlord’s discretion and other remedies for non-payment of rent may be available to the landlord before the expiry of the relevant period.
Tenants should also note that the restrictions do not apply to breaches of covenant (other than non-payment of rent) and a landlord can still forfeit a lease on that basis, subject to complying with the necessary provisions in that regard (the service of a notice pursuant to section 146 of the Law of Property Act 1925).
In addition, measures to last until at least 30 September 2020 (although it is likely this will be extended to correspond with the provisions for forfeiture) have been implemented to reduce the effectiveness of statutory demands. This means that a landlord cannot present a winding-up petition against a company tenant based on a statutory demand served after 1 March 2020. Neither can a landlord present a winding-up petition until after 30 September 2020 based on the company tenant's inability to pay its debts unless the landlord has reasonable grounds for believing that COVID-19 has not had a financial effect on the company.
On 20 September 2020, the stay on residential possession proceedings in England and Wales was lifted. Given the stay has been in force for almost six months (from 26 March 2020), the courts will face a vast backlog of cases, increased future demand due to economic consequences of the COVID-19 pandemic and reduced physical court capacity due to social distancing.
For cases stayed before 3 August 2020, depending on the stage reached, either party must complete a reactivation notice (RN), which must be filed at court and served on the other party. For landlords, the RN must set out its knowledge of the impact of COVID-19 on the tenant, having taken steps to ascertain that information. In addition, a party can indicate on the RN whether they consider their case to have priority.
The guidance provides a non-exhaustive list of cases that will be listed with priority. These include instances where there is anti-social behaviour, unlawful subletting or where 12 months’ rent has not been paid (or 9 months where it amounts to more than 25% of a private landlord’s income).
To alleviate against the number of cases requiring a hearing, ‘Review Appointments’ have been introduced. At these, a judge will carry out a five-minute review of the matter (without the parties in attendance) and decide whether to list the matter for a hearing, make an order or dismiss the case entirely.
Whilst not confirmed, the guidance indicates the introduction of a publicly-funded mediation scheme, with mediation taking place by telephone, video or in person. If the parties can reach a compromise the mediator will ask the court to approve the agreement and vacate the hearing.
Notwithstanding these measures to alleviate the demand on the court, if a landlord was to bring a claim for possession as soon as the stay was lifted (21 September 2020) and it was given priority and was successful, the possession order would not be enforceable, at the earliest, until sometime January 2021. For cases without priority, landlords will have to wait much longer.
In addition, before the Act came into force, landlords seeking to obtain possession had to serve either a notice pursuant to section 8 or section 21 of the Housing Act 1988 giving at least two weeks’ (in most cases) and two months’ notice respectively.
With the aim of protecting residential tenants from eviction, section 81 and Schedule 29 of the Act extended these notice periods, initially, both to three months. However, Regulations introduced on 29 August 2020 increased the notice periods to six months (subject to certain exceptions). One exception, which applies to notices served pursuant to section 8, is that a four weeks’ notice may apply where at least six months' rent is unpaid at the time the notice is served.
The property disputes team at B P Collins can advise on whether alternative options to the traditional possession procedure are available to landlords or, if proceedings are necessary or have already been issued, how to navigate through the reformed procedural process. To speak to Phil Hind or one of the property disputes team contact us on 01753 889995 or email firstname.lastname@example.org