The Coronavirus Act 2020 has played its part with property law, property management and the courts this year, so we’re talking Landlord & Tenant, Commercial Service Charges and Cladding updates, and what these might mean for you.
PROPERTY LAW DECEMBER 2020 CONTENTS FOR YOU!
- Forfeiture and CRAR in light of the Coronavirus Act 2020.
- The Court considered the role of landlord’s “conclusive” certificate in respect of service charges.
- High Rise Flats – Cladding update
CORONAVIRUS ACT 2020 & CRAR
FORFEITURE FOR RENT
Commercial rent recovery restrictions extended to 31 March 2021 and review of commercial landlord and tenant legislation to be launched
last week the government announced that it will be further extending the forfeiture moratorium deadline, as well as the time frame on restrictions on a landlord’s right to exercise CRAR and issue winding up petitions.
We quite like the simple way the Evening Standard set out their article. It’s obviously not great for the landlord, but if you’re a struggling and stressed tenant, then you have more time to breathe.
- Landlords will now not be able to forfeit any commercial leases for non-payment of rent, pursue CRAR or issue winding up petitions until the end of March 2021. The Government have said, however, that this will be the final extension. Watch this space….
- The Government made it quite clear that tenant who are able to pay should indeed pay.
- The right to forfeit* for other breaches of a lease remains, subject to tenant’s right to apply for relief from forfeiture.
- Landlords and tenants are expected to still follow the government’s Code of Practice, although it is voluntary, so again….watch this space.
- Issuing court proceedings is still possible to obtain judgments that secure 8% pa interest but be aware that tenants are savvy with defending claims, especially when they know or find out their landlords have pandemic insurance cover.
CRAR (COMMERCIAL RENT ARREARS RECOVERY)
A brief reminder of what CRAR is: It enables the landlord’s enforcement agent to enter the premises and to remove and sell a tenant’s goods to pay a rental debt due from the tenant to the landlord. Its birth came along in April 2014 under the Tribunals, Courts and Enforcement Act 2007 (the “2007 Act”).
A landlord’s ability to effect CRAR for unpaid rent is now further restricted by an increase in the amount of unpaid rent that must be outstanding before CRAR can be exercised. What?! Originally needing just seven days’ of unpaid rent in a world pre-COVID, this has been increased as each quarter day approached to be just over the number of days since 25 March 2020 (the March quarter day).
Currently, the amount of rent that must be outstanding before landlords can use CRAR is now 276 days – one day more than the period covered by the March, June and September quarters combined. On Christmas Day this year, (until 31 December 2020 currently) it will increase to 366 days – one year plus one day of rent must be outstanding to effect CRAR.
This essentially covers all unpaid rent from 25 March 2020 to 24 March 2021. The recent changes also continue to impact on a landlord pursuing recovery from subtenants when its tenant is not paying, as the same amount must be outstanding to recover rent from subtenants.
If this section is leaving you feeling overwhelmed and frustrated, please don’t hesitate to call us, we really are here to help, guide and advise.
Don’t be confused like this poor man! Just contact us, we really know property law like the back of our hands.
Which leads us onto….
SERVICE CHARGES & THE COURTS
As a leaseholder are you aware of your rights and your obligations under your Lease when it comes to Service Charges? As a Freeholder and Property Manager, are your leaseholders aware of the stipulations on their Lease and what is covered and when things may change?
Here’s the simple and effective infographic from The Leasehold Advisory Service as a quick reminder. As lawyers, we aim to parachute in with effective results when service charges aren’t paid, which is why we believe ensuring on tenants and leaseholders are fully aware of what’s in the Lease and what this means to them.
There are quite a few commercial service charge legal cases that have happened of late and the case between:
Sara & Hossein v Blacks Outdoor: Common drafting underpins contentious service charge case
has been one to follow with the decision of the Court of Appeal having been published back on 13 November 2020. Why has this case been so significant? Because it has an effect on all commercial landlords, tenants and practitioners, not only because service charges can often be a very contentious area, but also because the lease in question contained drafting which is commonly encountered in modern commercial leases. Like we always say, the draft lease is SO important to get right at the beginning as the implications of a dispute down the line can be extremely costly.
In this case the tenant had covenanted to pay a fair and reasonable proportion of the total service cost. At the end of each service charge year the landlord had to provide the tenant with a certificate of the amount payable by the tenant. The lease stated that the landlord’s certificate was conclusive (in the absence of manifest error or fraud) and that the tenant was prohibited from any right to set-off or counterclaim.
For two years the landlord provided certificates, but the tenant didn’t pay up saying that some of the works carried out weren’t necessary and were outside of the landlord’s repair obligations.
Previously in the year, the High Court found that the landlord’s certificate was conclusive as to the amount of costs incurred by the landlord, but that it was not conclusive as to whether those costs fell within the scope of the tenant’s service charge liability. This meant the ruling was very tenant-friendly. The High Court also decided that the ‘no set-off/counterclaim’ provision meant that the tenant could not withhold payment of service charge properly due, but that if there was a dispute as to service charge liability per se, then the operation of the provision depended on the outcome of that dispute.
That wasn’t the end though, nope, the dispute carried on and the Court of Appeal swooped in and on 13 November 2020 it unanimously reversed the decision made by the High Court. Why? Because it didn’t consider the judge’s interpretation of the ordinary meaning of the language used. In accordance with the law on the correct interpretation of contracts and on the implication of terms, the Court of Appeal said that, to separate out the provision and the conclusivity of the landlord’s certificate into separate elements would require express words to that effect or a necessary implication, neither of which were present here.
Court of Appeal quoted Lord Neuberger in Arnold v Britton (ibid):
“The purpose of interpretation is to identify what the parties have agreed, not what the court thinks they should have agreed. “
In delivering this landlord-friendly (as opposed the original tenant-friendly) decision the Court of Appeal also gave a blunt warning to any tenants to READ THEIR LEASE and make sure they understand exactly what they are agreeing and signing, mainly when the service charges are not capped.
We shall have to wait and see if this case is appealed once more in 2021!
Lastly, the team here at LMP Law just need to briefly comment on the tragedy that surrounded the Grenfell Fire and the never ending fight from ARMA and various others involved the removal of cladding that isn’t safe.
LEASEHOLD HIGH-RISE FLATS: WHO PAYS FOR FIRE SAFETY WORK?
In the March Budget of this year, the Government announced that it would provide £1 billion in 2020 to 2021 , and I quote:
“to support the remediation of unsafe non-ACM cladding systems on residential buildings 18 m and over in both the private and social housing sectors.”
The registration process for the Building Safety Fund opened on 1 June and closed on 31 July 2020. Applications for funding were (and are) only being considered from building owners, freeholders or responsible entities who registered. The deadline for submitting funding applications was initially 31 December 2020, but on 17 December the Government announced an extension to 30 June 2021.
Of course more time is welcomed, but The Housing, Communities and Local Government (HCLG) Select Committee highlighted several issues in its June 2020 report Cladding: progress of remediation that is linked for ease of reference.
ARMA has been pushing for more clarity for protecting leaseholders from having the pay the bill by pushing for more clarity in key areas, and establishing new responsibilities and setting professional standards
As mentioned in ARMA’s post,
“the question of who should pay for remedial work to fix existing fire safety problems remains unresolved and it is clear that the £1.6 billion building safety fund will prove insufficient. The draft bill fails to protect leaseholders from being charged for correcting issues for which they were not responsible and would allow freeholders to recover the cost of work through the building safety charge, contrary to what Ministers had promised.
The Government must once and for all commit to the principle that leaseholders are not liable for fixing historic building safety defects and this must be reflected in the Bill. Historic costs must be explicitly excluded from the building safety charge.
The Government should also announce its proposals for funding all building safety remediation work, removing the threat of large bills from leaseholders. In the short term this will require the Government to foot the bill while mechanisms are developed to recover the cost from those responsible for fire safety defects.”
Nigel Glen, ARMA’s CEO was interviewed on the BBC News and said, in regards to the Waking Watch Relief Fund,
“’30 million is a substantial sum of money, it will always help, but what we have to remember here is we are facing a multi-billion pound problem in respect to cladding.’
He did say, however, that the Government’s announcement on 17 December, that the new £30 million Waking Watch Fund Relief Fund was a huge relief for managing agents and leaseholders
Ultimately, the issue of who will pay is on-going and we will update you as the conversations and decisions are made.
TO CONCLUDE ON THE 2020 PROPERTY LAW UPDATE
The current global crisis is evolving rapidly, and therefore rules and guidance for tenants, landlords, leaseholders and freeholders are moving at an alarmingly fast speed, so this post is current and up to date on 22 December 2020, but please do contact us if you are unsure of the laws surrounding your queries in any event.
All your calls with us with be kept in confidence. We are here to help recover arrears, help secure service charges, keep an agreement secure, and litigate on your behalf.
Why not call our office or email us if you have any concerns surrounding anything in this post that may affect you? We are a small firm, so you won’t get lost in the system. We really are like your own in-house legal department, which is one of our USPs. Personable, considerate and seriously professional.