Covid-19 - A lockdown of property litigation updates

Since March 2020, commercial property owners and occupiers across many sectors, whether housing associations, charities, care providers or local authorities, have been impacted by the rules regulating how they deal with their tenants and their landlords. It seems each week there is a change in policy, regulation or legislation, governing how they must respond.

Tracking each change to the position has not been easy, has resulted in the circulation of numerous advice notes, even more one-off queries, and 6 months into the pandemic there is now some confusion on what the position is.

The purpose of this note is to provide a short guide, in one location, as to the main restrictions on landlord’s remedies that have been put in place over the last 6 months and what the rules are following changes at the end of September.

Forfeiture 
Section 82 of the Coronavirus Act 2020 imposed a moratorium on re-entry or forfeiture of commercial tenancies for non-payment of rent falling due between 25 March 2020 until 30 June 2020. This was subsequently extended to 30 September 2020 and it has now been resolved to extend it until 31 December 2020.

It is important to note that the moratorium does not eliminate a tenant’s obligation to pay rent during this period, but a landlord may not take steps to recover possession of premises, via forfeiture, during the period the moratorium is in force.

Possession claims

Practice Direction 51Z
On 27 March 2020, Practice Direction 51Z (“PD51Z”) introduced a 90-day stay on all proceedings brought under CPR Part 55 (possession claims) and all proceedings to enforce an order for possession by a warrant or writ of possession. It was made clear that the stay did not apply to claims against trespassers (persons unknown) or to interim possession orders but the effect of the Practice Direction meant that landlords looking to forfeit leases for breaches other than non-payment of rent via court proceedings (rather than by re-entry) were unable to do so.

CPR 55.29
The 90-day stay under PD51Z expired on 25 June 2020, and a new rule CPR 55.29, came into force. This had the effect of extending the stay from 25 June 2020 until 23 August 2020. CPR 55.29 applies to proceedings which were stayed immediately before 25 June 2020 and proceedings brought between 25 June 2020 and 22 August 2020. Changes made on 25 August to 55.29 substituted the previous stay end date of 23 August with the new date of 20 September.

As a result of the latest extension, no repossession (save against trespassers) could take place before 21 September and no possession claims could progress until the stay was lifted. Any possession claims issued by the courts before 20 September were held by the court for listing post-20 September.

CPR 55c
CPR 55c came into force upon expiry of the stay on possession proceedings imposed by CPR 55.29 and will operate between 21 September 2020 and 28 March 2021.

CPR 55c specifies the steps required for the reactivation of stayed possession claims, as well as procedural changes applying both to existing possession claims and the issue of new claims.

Different requirements apply depending on when the possession claim was first issued.

Stayed possession claims brought before 3 August 2020:

• The claim will not be listed, heard or referred to a judge until one of the parties serves a "reactivation notice", stating that they wish the case to be listed.
• The requirements for what must be included in a reactivation notice are:
  • Confirmation that a party wants the case to be relisted, heard or referred;
  • Sets out what knowledge a party has as to effects of Covid-19; and
  • The landlord should provide the unpaid rent account for the previous 2 years.
• The court must give at least 21 days' notice of any hearing listed or relisted in response to a reactivation notice.
• If no reactivation notice has been served by 29 January 2021, the claim will be automatically stayed.
• No reactivation notice will be required where a final possession order has been made.

Possession claims (new or stayed) brought on or after 3 August 2020

The claimant using the accelerated procedure must file with the claim form, and claimants in all cases must serve before and produce at the hearing;

• A notice setting out the knowledge that they have as to the effect of Covid-19 on the defendant.
• The claimant must serve the notice on the defendant not less than 14 days before the hearing.

In relation to all claims, whenever issued, the standard 8-week period between issue and hearing under CPR 55.5 does not apply.

It is worth noting that social landlords will need to confirm that they have complied with the Pre-Action Protocol for Possession Claims by Social Landlords.

Rent arrears

Winding-up petitions
The unavailability of forfeiture or possession claims has meant that landlords must look at other options. However, landlords looking only to recover unpaid rent would also struggle to do so by way of a winding-up petition.

The Corporate Insolvency and Governance Act 2020 came into force on 26 June 2020 and restricts the presentation of debt-related winding-up petitions where a company cannot pay its bills (including rent) due to Covid-19.

A landlord is not able to present a winding-up petition against a tenant company based on a statutory demand served between 1 March 2020 and 31 December 2020. A landlord will only be able to present a winding-up petition between 1 March 2020 and 31 December 2020 for a tenant company’s inability to pay its debts (debts will include rent) where the landlord can demonstrate reasonable grounds for believing that the debts would have arisen (i.e. the rent would not have been paid) for reasons unconnected to Covid-19. The landlord, therefore, will have to show that Covid-19 has not had a financial effect on the company.

Commercial Rent Arrears Recovery (CRAR)
The Commercial Rent Arrears Recovery procedure (CRAR) is a process that enables a landlord to serve notice on its tenants that it will attend premises to seize goods to cover unpaid rent.

The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 (the “Regulations”) came into effect which increased the minimum net unpaid rent that must be outstanding before CRAR can be relied upon, to an amount equivalent to 90 days' rent.

The Regulations have also been extended.

Prior to 30 September 2020, the amount that must have been outstanding before CRAR could be relied upon must have beeen equal to 189 days rent. From 29 September 2020 this has risen to 276 days until 24 December 2020 and will rise to 366 days from 25 December 2020.

Court proceedings
There are no restrictions upon landlords pursuing tenants for unpaid rent via court proceedings. A word of warning though, the heavy burden caused by Covid-19 means that it is unlikely that court proceedings will be progressed in a timely manner.

Alternatives
In the circumstances, landlords may want to consider whether they are able to draw on rent deposits, or to pursue guarantors under the lease.

It may also be possible to recover rent from former guarantors, or former tenants, subject to the proper procedures being followed.

For more information

For enquires please contact Phil Scully or Rhys Baker.