Bishop & Sewell

Three (ish) months ago I was asked to provide my predictions for 2020 / I can confidently say I never predicted this turn of events.

It is the morning Monday 23 March (the date for once is important as the goalposts shift almost daily) and I am sat, as ever with a cup of tea in hand, reading an article on a paramedic who was purportedly evicted by text message on 12 hours’ notice, where their landlord was concerned they may bring home COVID-19.

From the information available it would be dangerously complacent for a lawyer to suggest that this was clearly an unlawful act however, it does beg the question of how the Government will properly police and oversee their current proposals in relation to an embargo on evictions.

On 18 March 2020 the Government announced an introduction of “emergency legislation to suspend new evictions from social or private rented accommodation while this national emergency is taking place” website.

The Coronavirus Bill, now awaiting its second reading in the House of Commons later today, does not yet provide any reference in relation to these eviction controls. Presumably pens have been frantically scribbling amendments to include all the further intended emergency legislation and until these are available for consideration, I find myself again in that uncomfortable position of prophesising. However, and on the basis that legislation is seldom perfect when time allows for critical review, let’s give some thought to where some potential pitfalls may arise which tenants and landlords will want to avoid.

No Possession Proceedings for 3 months
There is no indication to suggest that this is limited to solely proceedings which came about as a result of COVID-19; for example what if a landlord has a bad tenant who is already behind on their rent and they have served a Section 8 Notice already? What happens if a landlord needs possession to make the property their permanent home?

Or what if a Landlord has served a Section 21 Notice simply because the time has come to bring the relationship to term? How regularly will a landlord need to serve a new section 21 notice to ensure it can be enforced when this stay is lifted? What happens if an AST runs over its fixed term and the gas safety certificate expires?

How does this play in relation to forfeiture proceedings for long leases where a landlord has already satisfied the s. 168 CLRA 2002 requirements? Does pursuing a declaration under section 168 constitute an application toward new possession proceedings?

What happens if there is a once-and-for all breach, but in the intervening period a landlord waives where they would normally? Does any rent sacrifice include rent on long leases? Does the embargo apply for other costs which are reserved as rent? Does this apply to lodgers or those occupying generally under licences?

The Rt. Hon. Robert Jenrick MP states: “no renter who has lost income due to the coronavirus will be forced out of their home, nor will any landlord face unmanageable debts”; what happens when a landlord is an intermediate landlord with their own superior landlord? What counts as an ‘unmanageable debt’ in comparison to a ‘manageable one’? Is this based on each landlord and / or tenant’s personal savings?

“Landlords will also be protected as 3-month mortgage payment holiday is extended to Buy to Let mortgages”. What evidence is required here? Will tenants need to provide statutory declarations to be provided to mortgage providers? What happens if the tenant has lied? Will landlords who rely on the income to pay their own mortgages be given the same opportunity if the mortgage does not relate to the property occupied by the tenant? Or what is the expectation on a retired individual, who is trapped in 12 weeks of self-isolation, and the income from a property is how they feed and heat themselves?

These are just a few examples of considerations which come to mind, and amongst the matters which people will need to have special consideration toward when assessing if these options are suitable for them. Although the suggestion that if ‘an idea cannot be written on the back of a chocolate wrapper it is too complicated’ is well established, sadly the rule does not generally work in relation to legislation.

Landlord and Tenant Consensus
Two comments in the announcement have really stuck in the back of my mind:

a) The government will also issue guidance which asks landlords to show compassion and to allow tenants who are affected by this to remain in their homes wherever possible; and

b) At the end of this period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ individual circumstances.

The former of these two, as to ‘compassion’, leads me to question how far this emergency legislation will reach. The law, much to people’s annoyance, is regularly a cold and unfeeling environment with harsh truths and unsatisfying justice. A plea of compassionate relief, in reliance on a point bad in law, will seldom be entertained by the court, and therefore if compassion is prescribed, I wonder for tenants: who will be the ultimate arbiter of their fate?

The latter, well, this draws upon memories of the eponymous High Trees case, etched into every law student’s mind as a cornerstone in the principles of promissory estoppel.

Central London Property Trust Ltd v High Trees House Ltd [1947] K.B. 130, takes the reader back to the Second World War (no doubt by now you will have heard tell of the similarities of necessity being placed upon Britons now as akin to that of wartime) when again landlords and tenants were attempting to navigate the need for human goodness and ‘compassion’ to ensure the survival of the nation. In the words of, the then, Denning J:

The block of flats was a new one and had not been fully occupied at the beginning of the war owing to the absence of people from London. With war conditions prevailing, it was apparent…that the rent…could not be paid…and an arrangement was made…

The arrangement between the landlord and the tenant (being them self a landlord to undertenants) was that the rent would be reduced to 50% of that for which the lease provided. The agreement had, in a rather oddly drafted fashion, meant to apply from the commencement of the lease and was without a sunset clause. Following the conclusion of the war, when the block was fully let, the landlord sought to return to the original rent granted and recover the difference for the period of reduction.

There were various arguments pursued as to: whether a simple agreement could amend a deed; whether such an agreement could operate without consideration; and whether the landlord was estopped from recovering the back-rent. Now I look back on it, it’s quite a roller coaster of a judgment (if that is your sort of thing) particularly given it is contained in only 6 pages! But it does raise an interesting precedent which people may be relying on in the near future.

Outside of the technical legal arguments as to formalities, and accepting that the method of agreement did not act to vary the lease itself, Denning J focused his judgment on the ‘conditions prevailing’ – in this instance being whether the block was fully or partially let:

If the case had been one of estoppel, it might be said that in any event the estoppel would cease when the conditions to which the representation applied came to an end, or it also might be said that it would only come to an end on notice…I prefer to apply the principle that a promise intended to be binding, intended to be acted upon and in fact acted on, is binding so far as its terms properly applied. Here it is binding as covering the period down to the early part of 1945, and as from that time full rent is payable.

Short end of the story, the landlord was entitled to claim rent at the full amount from the moment that the need for the reduction had passed, but not for the period prior.

Presumably, like me, you will now be at the bottom of your cup of tea (I like to hope those reading my articles share this experience with me) and wondering why I have thought it relevant to thrust a 70 year old judgment at you. Simply: please tell me what is the prevailing conditions will need to be for a rent break / no eviction period to exist? The period of mandated self-isolation, or the resultant consequences upon a tenant of COVID-19, in its holistic form, existing? When do the impacts become too remote or when does it become unequitable for landlords?

The government have suggested agreements be affordable repayment plans for the tenant. What happens if a tenant has lost their job or business in perpetuity? Which creditors, if there are others, should the landlord allow to go first, and could this lead to a preferred creditor situation? If there is a back-rent recovery period, must the tenant remain a tenant to that landlord throughout?

What happens where a tenant occupies a property and their rent includes outgoings such as water, electricity and council tax? What happens when the landlord loses their mortgage repayment holiday or there are charges attributable specifically to delayed rent? Can a landlord recover their legal fees for taking advice on these matters as costs arising from a breach of the lease (non-payment of rent), or would a tenant (who can’t afford legal advice because they are in this situation) seek to set any unfavourable terms aside for not having been able to obtain legal advice prior to agreeing? Another chain of questions which will vary in almost every single circumstance.

What can you do?
Until the draft legislation is available, it is exceptionally difficult for anyone to predict how it will apply, or which of the above matters will have been considered by the draftsmen already. I would like to hope that all of them will have been addressed, but that may be a big ask from a government which is already stretched in every direction whilst doing everything in its power to hold together a nation in distress (roles I imagine very few envy at this time).

What I do predict is that there will be a sudden surge of possession proceedings issued at the moment this embargo is lifted (therefore expect court delays), and a raft of confused individuals not knowing whether they can or cannot start to recover rent and / or seek possession, potentially themselves on the receiving end of litigation from their mortgages.

Before entering into any form of agreement, it may be useful for both parties to obtain advice, from a professional or, where suitable and available, a free organisation, or to at least have the terms of any agreement reviewed and properly drafted.

And before even entering negotiations: landlords will want to know what conditions their mortgage companies are applying to any payment holiday before speaking with their tenants; and tenants will want to know what their employment / support rights are before making a misrepresentation to their landlord which could lead to any agreement being set aside.

Me, as I sit at my desk at home staring out the window remembering the once dreaded commute through rose-tinted glasses, I now begin to wonder whether any landlord will be bold enough to allege breach of user clause where people are suddenly compelled to operate their businesses from home! It would be an interesting argument, although for the moment I think I’m done with hypotheticals. Time for certainty, starting certainly with another cup of tea.

Charles Jamieson is an experienced Legal Executive with the Dispute Resolution department of Bishop & Sewell LLP, taking instructions in Property, Commercial and Chancery disputes.

Email or telephone 020 7631 4141 for more information.

The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.

Category: News | Date: 23rd Mar 2020

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