Coronavirus (COVID-19)—implications of the Coronavirus Act 2020 and CPR PD 51Z on forfeiture

Coronavirus (COVID-19)—implications of the Coronavirus Act 2020 and CPR PD 51Z on forfeiture

What are the implications of CA 2020 and CPR PD 51Z for landlords wishing to take action against defaulting tenants?

There is very little that can be done to take action against defaulting tenants to obtain possession by court proceedings. CPR PD 51Z, which has now been extended to 23 August 2020, stays all possession proceedings under CPR 55 (save for some very limited exceptions) which captures all possession action against defaulting tenants. The only action that a landlord can take is to issue proceedings for possession (which will then be stayed) and to file directions for a case management hearing, but only if they have been agreed with the tenant.

CA 2020 imposes an additional layer of protection to most residential tenants in that it provides for greater periods of notice, three months before court possession action can be commenced. It also prohibits any forfeiture being taken in respect of business tenancies (defined as any tenancy to which the Landlord and Tenant Act 1954 applies—regardless of whether it is contracted out of protection) for non-payment of rent. This includes not just action by way of proceedings, but also peaceable re-entry.

Does CA 2020, s 82(2) preserve the right to forfeit in respect of all breaches of covenant?

No—as a ‘quid pro quo’ for the fact that forfeiture for non-payment of rent is temporarily suspended, it provides that nothing can be done to waive the right to forfeit for non-payment of rent save for an express waiver in writing. It remains possible to waive forfeiture for other breaches of covenant in the usual manner; ie by recognising the lease. In that regard landlords should be careful, if they are aware of other breaches, that they do not waive their right to forfeit. However, landlords remain hamstrung with regard to other breaches in that any possession action they commence for forfeiture of other breaches will be automatically stayed under CPR PD 51Z. They are still able to serve a section 146 notice under the Law of Property Act 1925 (LPA 1925), in respect of other breaches. They can still issue proceedings and then serve them; although query whether the stay would prevent service. If it is possible to serve, then that will effect forfeiture and, at that point, they can negotiate with the tenant without fear of waiving the right to forfeit for other breaches. Alternatively, a landlord can forfeit in respect of non-rent breaches by peaceable re-entry.

What are the implications of the provisions in CA 2020 and CPR PD 51Z for a tenant wishing to seek relief from forfeiture?

There are a number of considerations for relief. Some provide clearer answers than others.

It would seem that no application can be made in any existing possession proceedings for relief as those proceedings will be automatically stayed under CPR PD 51Z. The Court of Appeal in Arkin v Marshall [2020] EWCA Civ 620 made it very clear that the stay would only be lifted in exceptional circumstances, such as where somehow the stay was promoting the spread of coronavirus (COVID-19). An application for relief is far from exceptional. Even if the parties agree terms for relief, this is unlikely to come within the exception in CPR PD 51Z, where parties have agreed directions (see above) and so would not provide a means of dealing with the matter in the existing proceedings. Further, the court may hesitate before making any order for relief which was conditional on future action by the tenant; ie payment of sums or repair. Such an order usually starts with an order for possession which is disapplied if the conditions are met.

At the other end of the spectrum, if an LPA 1925, s 146 notice has been served, then the tenant is at liberty to make a freestanding application for relief. Although this is under CPR 55, it is not a claim for possession and so is not caught by CPR PD 51Z.

Difficulty arises if there are existing proceedings. If the tenant cannot apply in those proceedings because of the stay, then their option is to make a freestanding application for relief. While this might usually be an abuse, given the existing proceedings, in the present circumstances, the court is likely to look favourably on such an application. Further complications may arise if the landlord has already taken physical possession and further still if they have re-let the property. The latter always causes difficulties in terms of relief from forfeiture, but now, both scenarios throw up the query as to whether the tenant’s claim for relief would be seen as a claim for possession and thus caught by the PD. Given the primary remedy claimed is relief from forfeiture and the reinstatement of the lease, at least where the property has not been re-let, it seems unlikely that it would be considered a claim for possession.

Finally, in relation to existing claims for forfeiture for non-payment of rent, if the tenant pays all arrears and costs five days before a hearing, then relief is automatic under section 138 of the County Courts Act 1984.

What options remain available for a landlord to take action against a defaulting tenant?

Very little—highlighted above is the restriction on the usual remedy of forfeiture which is most severe in cases of non-payment of rent, but also applies to any possession claim. Highlighted below is the restriction on the other methods of enforcement (statutory demands, winding up petitions) that the landlord could normally avail themselves of. In addition, the Commercial Rent Arrears Recovery (CRAR) regime has been amended so that landlords cannot utilise this as a method of recovering arrears unless 90 days (a quarter’s) rent is in arrear; up from seven days.

In respect of arrears, a landlord could still issue a claim for a money judgment, but that is likely to take time and enforcement will be difficult. In respect of other breaches, the forfeiture route can still be followed, to a point, as indicated above: ie either possibly service of the claim form or peaceable re-entry. Alternatively, action could be taken to compel compliance with lease terms, such as repair etc, but that is likely to waive the right to forfeit and getting a hearing may be problematic.

What are the implications of the Corporate Insolvency and Governance Bill for a landlord wishing to exercise their right to forfeit?

The Bill focuses on insolvency matters and so has little direct impact on forfeiture. It does restrict a landlord from putting pressure on a tenant to pay by either serving a statutory demand or issuing a winding up petition. It also introduces a new light touch moratorium which, if engaged by the tenant, will prohibit forfeiture or CRAR.

Interviewed by Sabina Habib

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