What are Commercial Property landlords’ rights around recouping rent arrears?

The Coronavirus pandemic has hit many sectors such as hospitality, beauty, and retail with savage force.  Throughout 2020, attention has been focused mainly on the plight of tenants who have seen their customer footfall and/or turnover plummet.  However, many landlords are also struggling to cover their own financial commitments due to tenants being unable to pay rent.  Our North London commercial property solicitors regularly advise landlords who are treading a fine line between collecting rent to cover their liabilities and at the same time supporting tenants’ businesses to ensure investment properties remain occupied once the pandemic ends. 

If you and your team are preparing a strategy for collecting rent on the March quarter day, below are some answers to questions our commercial property solicitors are being asked by clients.

What are my legal rights regarding collecting rent from my commercial property tenants?

At present, commercial landlords are restricted regarding the legal actions they can take against a tenant who cannot or will not pay rent.  Until 31 March 2021 landlords cannot evict commercial tenants for rent arrears or use the Commercial Rent Arrears Recovery (CRAR) procedure unless an amount of 366 days’ rent is owing.  These restrictions have been in place since March 2020; however, when extending the restrictions in December 2020, the government made it clear that no further extensions would be announced:

Secretary of State for Housing Rt Hon Robert Jenrick MP said:

“I am extending protections from the threat of eviction for businesses unable to pay their rent until March 2021, taking the length of these measures to one year. This will help them recover from the impact of the pandemic and plan for the future.

“This support is for the businesses struggling the most during the pandemic, such as those in hospitality – however, those that are able to pay their rent should do so.

“We are witnessing a profound adjustment in commercial property. It is critical that landlords and tenants across the country use the coming months to reach agreements on rent wherever possible and enable viable businesses to continue to operate.”

Restrictions on insolvency measures including statutory demands and winding up petitions have also been extended until the end of March.

If I cannot evict a commercial tenant or take legal action for payment of rent arrears, what are my options?

In June 2020, the government published a code of practice for commercial landlords and tenants.  The voluntary Code is designed to “support businesses to come together to negotiate affordable rental agreements. It builds upon the discussions already taking place by giving those tenants and landlords affected by the crisis the tools to come to a mutually beneficial agreement; ensuring that best practice becomes common practice.”

The Code asks both landlords and tenants to be flexible, act in good faith, and support the long-term viability of businesses and the jobs they provide.  For example, tenants who are seeking concessions must be transparent as to why such concessions are required and provide relevant financial information to the landlord if requested.  In turn, landlords should provide concessions where they can, considering their own fiduciary duties and financial commitments.  If a landlord refuses to allow requested concessions, they/it should give reasons for doing so. 

In another example of mutual support, landlords can elect to reduce service charges during lockdowns when a premise is not occupied.  And in return, tenants can agree to pay additional service costs to fund Coronavirus-related health and safety requirements that landlords are required to comply with. 

Specialist Landlord and Tenant Solicitors in North London

Both landlords and tenants are being asked to ‘share the pain’ during the pandemic and co-operation will be needed for many months to come.  A commercial property solicitor can advise you on your rights as a landlord under the existing commercial lease agreement.  They can also assist you with re-negotiating terms per the principles of the government’s Code of Practice.

For further advice please get in touch with one of our North London Commercial property solicitors by email or on 020 8349 0321.

Combustible cladding ban set to effect all houses over four stories

The UK government is putting out consultation plans to ban combustible cladding on all residential buildings with four or more stories.  This follows a 2018 snap ban on putting combustible materials in cladding systems for buildings over 18m tall, a move that many of London’s best property solicitors supported following the Grenfell Tower tragedy.

Speaking in Parliament on 20 January 2021, Housing Secretary Robert Jenrick issued a dire warning to building owners that the government would start naming those who had not started work to remove unsafe Aluminium Composite Material (ACM) cladding from their buildings.

Housing Secretary Rt Hon Robert Jenrick MP said:

“The government is committed to bringing about the biggest change in building safety for a generation.

“Progress on improving building safety needs to move significantly faster to ensure people are safe in their homes and building owners are held to account.

“That’s why today I’m announcing a major package of reforms, including establishing the Building Safety Regulator within the Health and Safety Executive to oversee the new regime and publishing consolidated guidance for building owners.

“Unless swift progress is seen in the coming weeks, I will publicly name building owners where action to remediate unsafe ACM cladding has not started. There can be no more excuses for delay, I’m demanding immediate action.”

In addition to the consultation plans, the Minister also announced:

  • As mentioned in the Minister’s comment above, a Building Safety Regulator would be established immediately in shadow form before being fully created by legislation. The Health and Safety Executive (HSE) has been asked by the government to establish a Building Safety Regulator.  It will be responsible for overseeing building standards, including a more robust regime for high-risk buildings. Dame Judith Hackett will preside over the creation of the new regulatory body.
  • The government-appointed independent expert advisory panel (IEAP) has clarified and updated advice to building owners regarding the safety measures that must be implemented and emphasised the focus should be on cladding. The advice makes it clear that building owners must address safety issues on residential buildings 18m or under.  AMC and other metal composites with an unmodified polyethylene core must not be used on any residential buildings of any height and removed from existing structures.
  • A construction expert will be appointed to review AMC cladding remediation timescales and identify how the process can be sped up. To remove the barrier of costs, a factor which has seen many property litigation lawyers managing disputes between building owners and leaseholders/tenants or building owners and local authorities, the government is examining options to mitigate costs and provide alternative financing pathways to the already existing £1.6bn Building Safety Programme.
  • The proposed height threshold for sprinkler system requirements in new buildings will be announced in February 2021.
  • Further details have been provided on the Fire Safety Bill which is being introduced in Parliament. The proposed legislation will amend the Regulatory Reform (Fire Safety) Order 2005 (‘the Fire Safety Order 2005’) to make building owners accountable for not complying with the necessary fire safety guidelines.  Residential building owners will have a legal obligation to consider and mitigate the risks of any external wall systems and front doors to individual flats.

Finding a specialist lawyer for landlord and tenant disputes 

Solicitors specialising in property law are working closely with landlords and leaseholders/tenants to resolve disputes around cladding removal.  Many leaseholders are living in flats that are unsalable (not to mention unsafe), and it has become clear that there is a significant shortfall between the cost of the cladding removal and associated repairs and the government funding available.

According to the BBC, a clause in the contract the Ministry of Housing, Communities and Local Government requires applicants to the fund, usually managing agents or building owners, to sign states that applicants themselves will be liable for any repair costs not covered by the fund.  This has led to many managing agents and building owners understandably refusing to sign until the government clarifies the extent of their liability. 

The Housing Minister’s announcement concerning measures to fix the ongoing cladding crisis will be welcome by property lawyers, building owners, and leaseholders/tenants alike.  However, with the threat of naming and shaming freeholders who have not started to undertake work or whose building repairs are progressing slowly, the pressure is mounting on the government to swiftly provide clarity and additional funding schemes.

Get in touch today with one of our property litigation solicitors for further advice.

What Proposed Leasehold Reforms Mean For Landlords and Leaseholders

Few legal matters have caused as much ire in the media and amongst affordable home campaigners as the leasehold system.  Once a form of land tenure spread across the British Empire, it is now almost solely confined to England and Wales.  Ever since the ground rent scandal caught the media’s attention in 2017, (where developers locked tenants into contracts which could see ground rent of £200-£400 doubling every ten years, making the properties virtually unsellable), there have been calls for the system to be radically reformed.  In 2019, it was announced that all new build homes must be sold as freehold and ground rents on new flats slashed to zero.  And in January 2021, further leasehold reforms were announced. 

What are the proposed new reforms?

The government’s proposed changes to the leasehold system are as follows:

  • Leaseholders will be able to extend their leases for 990 years as opposed to the current 90 years, and ground rent following the extension will be abolished.
  • Although the vast majority of landlords quote reasonable costs for leasehold extensions, a few do significantly inflate the figures. To prevent this, the government will provide an online calculator to determine how much a leaseholder will need to pay to extend their lease or buy the freehold of their property.
  • The requirement to pay the ‘marriage value’ after the lease runs down to 80 years or under will be abolished. The ‘marriage value’ refers to the amount the property has increased in value since the last lease renewal.  Having to pay ‘marriage value’ can add thousands of pounds to the cost of a lease renewal.
  • Ground rent will be scrapped for retirement properties in order to protect the elderly.
  • Leaseholders can voluntarily agree to a restriction on any future development of their property to avoid paying ‘development value’.

What is the purpose of the Commonhold Council which is being established?

Commonhold is a form of homeownership introduced in 2004 by the Commonhold and Leasehold Reform Act 2002 and Commonhold Regulations 2004.  It allows people purchasing units in multi-occupancy developments to own the freehold of their home.  In addition, a commonhold or residents’ association (made up of the unit owners) owns and manages the common parts of the property per standardised rules.

Under the proposed legislation, the government is to establish a partnership of leasehold groups, industry, and government.  The Council will be charged with helping prepare landlords, homeowners, and the property market for the widespread take-up of commonhold tenure.  It is believed that fewer than 20 commonholds have been created because of the complexity moving from a leasehold structure to commonhold and the reluctance of mortgage lenders to recognise the latter.

What should landlords and leaseholders do to prepare for the changes?

Both landlords and leaseholders will be affected by the proposed changes to the leasehold system.  Freeholders, especially developers, are likely to find that the projected income from their leasehold properties will fall if the law changes.  And although the changes appear advantageous for tenants at first glance, it is best to proceed with caution.  With the problems resulting from the Coronavirus pandemic and Brexit, there is no guarantee that a Bill will be passed into law this year or even next.  As a comparison, the government announced an overhaul of divorce laws in April 2019.  The Divorce, Dissolution and Separation Act 2020 received its Royal Assent in June 2020 but will not come into effect until Autumn 2021, two years after the announcement was made.

For both landlords and tenants, it is best to seek advice from an experienced residential property solicitor before taking any action based on the government’s announcement regarding changes to the leasehold system.

To make an appointment to discuss any aspect of residential property please get in touch today.

A Fine Balance – Coronavirus Lockdown Number Three

Although it was an inevitable consequence of a virulent new strain and the coming of winter, Coronavirus lockdown number three is taking its toll on an exhausted population. Despite the vaccine being rolled out at a galloping pace, being stuck at home during the dank, dreary days of mid-winter is filling few people with joy if the comments on internet forums and newspaper op-eds are to be believed.

However, much of the government’s mixed messaging that is causing frustration and confusion is the result of a much stronger and more positive strategy than was present during the March lockdown. Back in those scary days of early 2020, everyone, including scientists, healthcare workers, and politicians had little idea of what they were dealing with. So when a national lockdown was announced, the country (and indeed most of the world) simply shut up shop. Although initial estimates of a 14% drop in national output proved overly pessimistic, the actual figure of around £190 billion (a drop in GDP of 9.5%) was catastrophic for many industries and businesses.

Ten months on we have a better understanding of not only the virus, but how to keep as much of the economy running as possible whilst facilitating the extreme social distancing required. Schools have more children of key workers attending because not only has the definition of key worker been expanded, but fewer businesses are furloughing staff. The property market, construction, manufacturing – industries that ground to a halt in March, April, and May 2020 are continuing to operate. Furthermore, as always happens in a crisis, people quickly adapt and hunt out opportunities. Many small businesses have taken advantage of their agility and moved online and/or sought new markets abroad, resulting in some being busier now than they were pre-pandemic.

In light of the current dynamic situation, below are some factors which employers need to be aware of regarding the Job Retention Scheme and health and safety compliance, including pitfalls to watch out for.

Coronavirus Job Retention Scheme (the Furlough Scheme) and government-backed loans

In December 2020, the Chancellor, Rishi Sunak announced that the Furlough Scheme, in which the government pays 80% of a furloughed employee’s wages, will continue to the end of April 2021. Businesses will also be given until the end of March to access the Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme, and the Coronavirus Large Business Interruption Loan Scheme.

Watch out for – furlough fraud

Alongside the extension of the Furlough Scheme a parallel project is being run by HMRC to claw back funds that should not have been claimed during the first lockdown. Make sure you follow the rules of the scheme diligently, the most important being that furloughed employees must not work. To mitigate your risk of an HMRC investigation, ensure that you keep up to date records of who is receiving furlough payments and the funds distributed. The other area of concern is the rampant furlough fraud being committed by organised criminal gangs. Protect your business from being unwittingly caught up in such fraud by having documented new customer and supplier due diligence policies and procedures in place and communicated to all staff. In addition, rigorously monitor your business accounts/investments for any unusual activity.

Manging Coronavirus risks in the workplace

If your employees cannot work from home you must conduct a Coronavirus health and safety risk assessment at your premises/s and implement policies and procedures to ensure your staff and the public are protected. Not doing so could result in your organisation and its directors facing a regulatory investigation, personal injury or employment law claims, and even prosecution.

Acas advice regarding keeping your workplace safe is regularly updated. At a minimum, all employers should have regard to eight priority actions designed to protect employees and customers:

  • Complete a Coronavirus risk assessment and share it with all staff.
  • Encourage staff to wash their hands regularly, provide hand sanitisers, and clean surfaces frequently.
  • Help with social distancing by putting a one-way walk system in place for staff and customers.
  • Ensure that face coverings are worn by anyone visiting your workplace (unless they are medically exempt).
  • Keep your workplace well ventilated. The HSE has provided excellent guidance on this.
  • If applicable to your business, follow the legal requirement to keep a record of staff and customers attending your workplace and ensure that your method of data collection is compliant with the NHS track and trace system.
  • Consider the mental health of you and your employees. Public Health England has produced useful guides on steps to improve mental health during this turbulent time.
  • If an employee is required to self-isolate they must do so. Under the Health Protection (Coronavirus, Restrictions) (Self-Isolation) (England) Regulations 2020, employers have a legal obligation to ensure staff they know have tested positive for Covid-19 or have been in close contact with somebody who has, do not come to work. Failure to comply with this law can result in a £1,000 fine for the first offence, rising to £10,000 for repeated offences. Workers must also inform employers if they are required to self-isolate.

Watch out for – breaching your duty of care to homeworkers

All employers have a duty of care to protect the health, safety, and wellbeing of their employees and visitors to their workplace. This includes homeworkers. Ensure that you have homeworking staff conduct a risk assessment relating to their workstation setup. HSE has provided a useful checklist for this. Also, keep in regular contact with homeworkers to make sure they are not feeling isolated and stressed. Out of sight, out of mind could result in a future Employment Tribunal claim so check in regularly and give all employees a point of contact who they can call if they need support.

The government’s aggressive rollout of the vaccination programme provides hope that this will be the last big lockdown we have to battle through. For employers, navigating the ever-changing laws and guidance is a challenge in itself. Our team is here to support you and provide bespoke advice for your business. The cliché “it is always darkest before dawn” has been regularly bandied about over the past few weeks, but in this case, it is likely to be true.

To make an appointment to discuss any aspect of employment law please email or phone our helpdesk on (0)20 8349 0321.