Property Sector Set For A Wave Of Post-Lockdown Litigation
A raft of measures from the Government and the courts intended to help both residential and commercial tenants during the coronavirus pandemic may be storing up a wave of litigation warn experts.
Leeds-based property litigation firm Hägen Wolf warns that temporary restrictions on the termination of both residential and commercial tenancies and the service of statutory demands and winding up petitions due to non-payment of rent which will expire at the end of June could lead to a surge of possession and insolvency litigation based on rent debt when the lockdown ends.
Measures that have already been introduced extending the notice period for notices to quit and notices under both s.21 and s.8 of the Housing Act 1988 to three months, which apply to all notices served before 30 September 2020.
Any possession proceedings issued relating to residential property (including requests for enforcement of an existing possession order) are automatically stayed until 25 June at the earliest, subject to some minor exceptions related to trespassers and interim possession orders.
Additionally, measures have been introduced to prevent the forfeiture of commercial leases until the end of June 2020.
Further measures are on the way, including a temporary ban on the use of statutory demands and winding up orders to force payment where a company cannot pay their rent or bills during the lockdown period.
The measures will be included in a new Corporate Insolvency and Governance Bill, yet to be published. The government is also laying down secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR), an asset seizure remedy unless they are owed 90 days of unpaid rent.
While these measures will be a welcome relief to many tenants, none of these measures releases tenants from their contractual obligations. Deferred rent will mount and will still be payable. This raises the question, what happens after these measures expire?
Matt Pugh, the managing partner at Hägen Wolf, said: “The effect of those changes is only temporary and the Government has made it clear that tenants are still liable for their rent and should pay this as usual. The pause on litigation does nothing to resolve issues, and we already see a spike in enquiries about possible legal action following lockdown.
“For residential tenancies, the changes only slow down evictions and do not prevent them. We suspect that many residential landlords are waiting to see what further changes the Government makes before issuing notices and possession claims on tenants who have fallen on hard times.”
The legal firm argues that after the expiry of the moratorium, where commercial tenants are unable to find the money due then landlords will seek to forfeit leases.
Mr Pugh concluded: “Landlords will balance a weaker property market with their commercial requirements and many are already looking to take further action against their tenants, whether that be Commercial Rent Arrears Recovery, a county court claim, or insolvency proceedings. As such, we expect a glut of litigation and insolvencies once the restrictions on evictions have been lifted.”