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Real estate disputes
As certain businesses are unable to trade and jobs are at threat, the financial difficulties of tenants will inevitably begin to impact upon landlords. The UK has entered uncharted territory and the government has put in place emergency measures to protect tenants. What should residential and commercial landlords expect?
3 minute read
24 March 2020
As the UK enters uncharted territory, there are likely to be many changes to “business as usual”. Among these changes, there may be significant factors for landlords to bear in mind.
Proposed emergency eviction freeze
The Housing Secretary Robert Jenrick has announced that the government would pass emergency legislation to protect tenants from eviction if they fall into ‘financial difficulties’ as a result of the ongoing crisis. Financial difficulties have not been defined, however it is anticipated that ‘difficulty’ need only be potential and will be presumed valid if raised as an issue.
Details of this legislation are still limited but they are likely to affect the ability of landlords to evict residential tenants in the usual manner, relying either on section 8 notices or section 21 notices. Currently this only applies to new proceedings, but there are demands for a complete freeze on ongoing proceedings as well. More on this below.
Possible rent freeze
The Acorn Union, described as a community and tenants’ union, has begun a petition calling for the government:
The petition notes the potential mortgage holiday for landlords and demands that rents be suspended. It remains to be seen how the government will react to these demands. Currently, the government’s position does not seem to affect ongoing evictions proceedings except by mortgage firms, but things are changing quickly.
Mortgage payment holiday
The government has also announced an initial 3-month mortgage payment holiday for borrowers who are experiencing payment difficulties as a result of COVID-19 and where they request such a holiday. This includes landlords whose tenants have difficulty making payment of rent. The FCA guidance leaves open the possibility that payment holidays may be shorter than 3 months if so requested by the borrower.
You should indicate to your lender at the earliest possible time if a payment holiday is desired or needed, and in as many forms of communication as are practical.
As things currently stand, interest will continue to accrue on the mortgage throughout the duration of the mortgage holiday and that the missed mortgage payments will eventually need to be paid in full.
In the latest government announcement commercial tenants unable to pay rent because of the coronavirus will be protected from forfeiture. These measures, included in the emergency coronavirus Bill currently going through Parliament, will mean that landlords will not be able to forfeit business leases if their tenants fail to pay their rent in the next three months. At present, the ban is anticipated to be lifted after 30 June 2030. The Government is looking to monitor the impact on commercial landlord’s cashflow.
Concessions to consider
Many tenants are likely to experience financial difficulty in the current climate. While a tenant will have no legal right to demand any of the following, a landlord may wish to grant one or more concessions if a tenant is unable to pay as usual:, and given that the tenant cannot be evicted in the interim:
Aside from forfeiture, the usual forms of enforcement remain available to commercial landlords (e.g. CRAR; debt claim; rent deposit withdrawal; statutory demand). The practical implementation of those options, may, however, be hindered by the current COVID-19 crisis. For example, agents that would usually effect CRAR will no longer be able to attend the premises; and the courts will be running a reduced service in terms of processing debt and/or insolvency proceedings.
Seeking to enforce historic debts, or obtain possession of a premises may be a good option if the landlord thinks there is a decent chance of finding a new tenant who can pay the rent. In the current climate, such a thing is far from certain.
Tenants forced to close
Many tenants are being required to close their premises as part of the government’s policy of social distancing. This may be in breach of a “keep open” covenant, but this would be unenforceable by injunction so the premises will likely stay shut.
If the premises are shut, landlords should consider whether insurers need to be notified of this. Landlords should also be careful about accepting the return of keys as this could be an implied surrender of the lease. The landlord should make clear that it is not accepting a surrender of the lease when the tenant hands over the keys, and should seek legal advice on how to proceed.
At present the Courts remain open, though how long this will remain the case is not clear. In certain circumstances, Judges may elect to use audio or video links rather than conduct physical hearings. This is likely to become more prominent over the coming months. While access to justice is a priority for the government, processes may slow down as the courts adopt and adapt to different ways of working.
We recommend that landlords be proactive in this situation. We suggest that you contact your tenants (by phone or email) to discuss whether they anticipate financial difficulties as a result of the coronavirus, specifically whether they are going to be in a position to pay their rent.
It should be made clear that those unaffected by the coronavirus should continue to pay rent as normal. It should also be made clear that any deferred rent during this period will still be payable at a later date. Tenants should be encouraged to pay their rent if they can so as to avoid future unmanageable repayments.
You should also contact your insurance provider to see whether you are covered for loss of rent in these circumstances.
In addition to any legal implications, the developing crisis is likely to have far-reaching practical effects. As more and more people are required to work from home, it is possible that court processes such as the appointment of bailiffs may be delayed. A reduction in capacity may lead to a backlog of work to be processed.
Landlords may also be minded considering the public relations impact of chasing rental payments and / or eviction proceedings. It may be possible to act within the rules as they are written but fall foul of the court of public opinion.
The situation is developing daily and in hard to predict ways. While little is certain, clearly business will not simply continue as usual. All parties will need to be flexible as circumstances dictate.
24 March 2020
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