2021 and beyond: A wave of M&A litigation?
Partner and Head of Dispute Resolution, Nick Wells, takes a look at the likely rise in litigation in 2021 following the COVID-19 pandemic.Read more
In light of the current economic crisis, the Government has announced changes and restrictions to the possession process.
These changes are intended to be temporary to cover the period of the pandemic and could be subject to review and extended further if the need arises.
The Government announced proposals to prevent tenants from being evicted during the coronavirus outbreak which have now been ratified in the new Coronavirus Act 2020. The sections relevant to possession are sections 81, 82 and schedule 29 of the Act.
The Government has now extended the notice periods previously required to a minimum of three months’ notice. This is intended to be the position until 30 September 2020 (the “Relevant Period” for residential tenancies). However, the Government could extend this for a further period should they feel this was necessary. This does appear to be different from the outright ban on evictions initially announced, as possession action has not been completely halted. This means that a landlord can still serve a notice, but any notices now served must be for the new notice period of three months, regardless of whether these are pursuant to section 8 or section 21 of the Housing Act 1988.
This means that a section 8 notice which ordinarily provides for a period of 14 days will now need to provide a period of three months, and section 21 notices will now need to provide three months rather than two months.
At this time, there does not appear to be any prohibition on issuing court proceedings once the relevant notice has expired. It will need to be borne in mind that it is likely that the courts will be experiencing severe backlogs and there are expected to be significant delays in the listing of hearing dates.
We have seen commentary which suggests that there was an intention for the Pre-Action Protocol for Social Landlords to be extended to the private rented sector. However, this does not appear to be reflected in the Coronavirus Act 2020. It is possible that this could be added at a later date, or that the Government have decided at this point that the notice extension is sufficient.
Ongoing possession claims
At this time, the Coronavirus Act 2020 appears to only affect notices served after it came into force. It does not appear to apply retrospectively, although it can be expected that the courts will be taking extra measures to ensure that the landlord has acted reasonably during this time. This is more likely to be the case if the landlord is asking the court to consider awarding possession based solely on discretionary grounds.
Position at court
Following the recent government announcements, many courts have already vacated all “non-urgent” civil matters from the list unless they are suitable for remote hearings by telephone or video conference. In contrast, all block listings such as possession and insolvency hearings have been vacated in order to promote social distancing and have been deemed inappropriate for remote hearings. The courts also began to suspend bailiff evictions in anticipation of the legislation and latterly due to government guidance on social distancing and essential work.
Whilst it is not specifically set out in the Coronavirus Act 2020, it is unlikely that a court would award any new possession order to expire before the end of June 2020 and even then, it would be unlikely that an eviction date would be secured quickly. It is also anticipated that any claims by tenants for exceptional hardship and extended orders during this time are likely to succeed.
In short, a landlord is unlikely to be able to recover possession of a residential property until well after summer 2020. Whilst notices can be served, provided they expire on or after the end of June 2020, the court process then has to be navigated for which there is expected to be significant delays.
It is very common in possession claims that the landlord and tenant will effectively have no contact with each other during the possession process and will only come into contact with each other at court on the day of the possession hearing. In these unprecedented times, where possible, a line of communication with the tenant should be opened and discussions can then take place to establish what, if anything, the tenant can afford to pay during this time.
Landlords may have the ability to apply for a payment holiday if the property is subject to a buy to let mortgage. In this instance, it is therefore probably expected that the tenant should also be afforded some grace.
The Coronavirus Act 2020 has provided for there to be a moratorium on commercial evictions for non-payment of rent for a period of three months, also known as the “relevant period”. This has been introduced to prevent landlords from taking forfeiture action where a tenant has defaulted on payment of rent.
Usually, if forfeiture action is not taken quickly, the landlord risks waiving the right to forfeit. However, it has been introduced that landlords will not be taken to have waived the right to forfeit for non-payment of rent by anything other than an express waiver in writing. This is clearly to encourage communication between the landlord and tenant to attempt to agree and resolve the issue without the need to resort to legal action.
The Coronavirus Act 2020 has stipulated that the relevant period for business tenancies will end on 30 June 2020. However, it is possible that this could be subject to further review.
If High Court proceedings had already been commenced before the Coronavirus Act 2020, the court cannot order that the tenant gives possession of the property back to the landlord before the end of the relevant period, 30 June 2020. If a conditional possession order has already been granted by the High Court, the tenant can apply to the High Court to vary the order and the same restrictions will apply for any order not to require possession before the end of the relevant period.
If proceedings have already been commenced in the County Court, the court cannot award an order for possession based on forfeiture for rent arrears that expire before the last day of the relevant period.
For matters where the landlord is seeking to oppose the renewal of a business tenancy under section 25 of the Landlord and Tenant Act 1954 based on rent arrears, any failure to pay rent during the relevant period will be disregarded.
At this time, it does not appear that there are any restrictions on the eviction of trespassers or persons unknown.
If the landlord wishes to serve a section 146 notice pursuant to the Law of Property Act 1925 for any a breach of the lease other than rent arrears, it does not appear that they are precluded from doing so. However, it must be considered whether any alleged breach could be as a result of the current crisis. If it is likely that the breach has occurred due to the current crisis, then it is likely that any application for relief from forfeiture by the tenant will be successful. We would suggest that any forfeiture action should be carefully considered at this time and should you need further guidance in this respect, our Property Litigation team is always on hand to assist.
Unfortunately, the best form of leverage for a landlord is the threat of forfeiture. However, given the new legislation, it will not be possible to exercise this threat in the coming months. It may be possible that in light of the current circumstances, the tenant would be happy to be released from the long-term obligations of a lease, but it is unlikely that there will be many new prospective tenants. Therefore, it may not be commercially viable for the property to be empty.
Rent obligations have not been suspended and a large number of quarter rents will now be due. Whilst a landlord may not be able to take forfeiture action at this stage, this does not prevent them from being able to use alternative methods to recover rent. However, consideration will need to be given to the current circumstances and it may simply be a case that the tenant cannot afford to pay at the rent.
Therefore, it is advisable to attempt to communicate with all tenants as early as possible in order to potentially agree a way forward which is mutually beneficial (as best as it can be) during this time. It is important to remember that the right to forfeit for non-payment of rent cannot be waived unless by express waiver in writing.
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