Residential & Commercial Property Archives - MLP Law

Beyond Covid – What’s next for landlords and tenants?

Welcome to our series of blogs, addressing post-lockdown issues from a legal perspective. In the latest in our series of blogs, Mark Turner (who heads the firm’s Dispute Resolution team) looks at how Covid has impacted on landlords and tenants – both commercial and residential – and what the next few months may hold as restrictions start to be lifted.

The Covid pandemic has of course impacted on all of our lives over the past 12 months, and the government has introduced emergency legislation to try to limit that impact for many of those affected.

Tenants, of both residential and commercial properties, were afforded additional protection against eviction if they found themselves struggling financially. That protection came largely at the expense of landlords, who faced with tenants who were unable to pay the rent had very little recourse to the law.

Residential tenancies

In relation to residential property, it’s not hard to see the rationale in favour of halting evictions – the last thing the government wanted at a time when it was telling people to stay at home to avoid spreading the virus was a wave of displaced people who had been evicted from their homes.

Evictions came to a complete halt during the first lockdown of 2020. In March, all existing possession proceedings were put on indefinite pause and a moratorium imposed preventing the issue of fresh proceedings.

The moratorium was lifted as the country came out of the first lockdown, but the new regulations only permitted courts to make possession orders where there had already been considerable arrears of rent before the onset of the pandemic.

Subsequent revisions to those regulations have relaxed the restrictions and the courts can now make possession order where there are at least six months’ arrears of rent, which do not have to pre-date the pandemic.

Most evictions remain suspended until the end of May 2021, though are still possible where a possession order was made on the basis of arrears of rent and there are more than six months arrears.

Alongside the restrictions on the making and enforcement of possession orders, the new regulations required landlords to, in most cases, give considerably more notice to tenants to quit than had been required previously. Notices to quit based on breaches by the tenant – most notably the failure to pay rent – increased to 4 weeks.

“No fault” notices to quit under section 21 of the Housing Act 1988 previously required 2 months’ notice but this was increased to 6 months.

How are things likely to change as the country starts to emerge from the pandemic restrictions?

What next for residential tenancies?

When it extended the eviction moratorium to 31st May, the government announced that at that point the ban will taper off. No details have been given as to how this ‘taper’ will take effect, with a government statement merely saying: “The government will consider the best approach to move away from emergency protections from the beginning of June, taking into account public health advice and the wider roadmap.”

With the vaccination program having made good progress, it is likely that the government will also relax the increased notice periods that landlords have had to give during the pandemic, though it is far from clear that they will return to the position prior to the pandemic.

Even before the pandemic, the section 21 notice had been subject to heavy criticism from a number of quarters, citing the lack of security of tenure it gave to tenants who had done nothing wrong, and may well have lived in the property for a number of years, but could be required to leave with just two months’ notice.

At the state opening of Parliament on 19 December 2019, the Queen’s Speech announced a Renters’ Reform Bill that would abolish the use of ‘no fault’ evictions by removing section 21 and reforming the grounds for possession.

The government said at the time that doing so would give tenants who had done thing wrong greater protection from arbitrary eviction while also giving landlords more rights to gain possession of their property through the courts where there is a legitimate need for them to do so by reforming current legislation. Without providing any details on how, it also said that it would work to improve the court process for landlords to make it quicker and easier for them to get their property back.

Perhaps understandably given the advent of the pandemic some three months later, the government had not taken any steps to progress this bill and it remains to be seen whether it intends to do so.

It is likely that there will be some sort of change to the current section 21 “no fault” notice mechanism, though it’s impossible to say when or what form that will take. Much depends on whether the government can find time in its post-Covid legislative agenda to push this forward.

The fault-based notice regime was less controversial and is less likely to see any significant change. For their part, landlords would certainly like to see the government deliver on its promise to make it quicker and easier to regain possession from tenants who don’t pay the rent or otherwise breach their tenancy agreement – at present, the system is slow and costly, and when once they have regained possession landlords cannot recover any of those considerable costs from the defaulting tenant.

Commercial tenancies

While not as extensive as that afforded to residential tenancies, the government’s emergency legislation also afforded extra protection to commercial tenants hit by the impact of the pandemic.

The landlord’s traditional remedy to deal with non-paying commercial tenants, forfeiture (i.e. re-entering the property and bringing the lease to an end, without the need to get a court order) was suspended and remains unavailable until at least 30th June 2021.

The other usual remedy, of taking possession of goods belonging to the tenant and selling them to pay rent arrears (known as the Commercial Rent Arrears Recovery or CRAR) was still possible but subject to strict limits based on the number of months’ arrears of rent, and these limitations will remain in place until at least 31st July 2021.

The weapon of last resort – applying to make the tenant bankrupt or to wind up the company – was also made more difficult given the restrictions imposed on the presentation of bankruptcy and winding up petitions unless it can be shown that coronavirus has not worsened the debtor’s financial position or the debtor could not have paid its debts even if there had been no such worsening of its financial position.

Other landlords such as monetary claims through the court, or against guarantors, remained possible but many commercial landlords have had found themselves with very limited options to recover unpaid rent over the past year.

What next for commercial tenancies?

Again, no-one knows for certain as the government has given little indication of how it intends to proceed once the current restrictions come to an end in the next few months but the expectation is broadly that the restrictions will taper off in a similar way to residential tenancies.

It seems likely that there will be some further protection for tenants, bearing in mind that many will only recently have re-opened their businesses and there will be others in the hospitality industry who cannot do so until May. The likelihood is though that there will be a return to “business as usual” in terms of enforcement remedies as 2021 progresses.

Whether landlords choose to use those remedies even if they become available again is of course another matter. It is thought in some quarters that the pandemic as created a seismic shift in some sectors away from centralised working, which may have a marked effect on the demand for office premises. Landlords may well be more inclined to try to negotiate with tenants who are struggling to pay the rent rather than find themselves with empty premises they can’t re-let.

Anecdotally, however, demand for industrial and other manufacturing premises is healthy and the trend for market rents is upwards rather than downwards. Where that is the case, landlords may well be much quicker to start re-using their rights to obtain payment or end tenancies where they feel that they can find tenants better able to pay.

If you have any questions, or are a residential or commercial landlord and have issues with non-payment of rent or other tenant issues, please get in touch with the MLP Law Dispute Resolution team disputeresolution@mlplaw.co.uk or call on 0161 926 1534.

Reminder Warning on Break Clauses


Following on from our series of observations on commercial property matters as the country moves further out of lockdown, tenants will already be thinking of the future and as to whether or not the current property “is fit for purpose”.  If property changes are needed and the tenant is lucky enough to have a lease with a break clause, then here are some reminders as to considerations affecting the effectiveness of the break clause.  These considerations will also apply where tenants are entering into new leases or renewing leases of which a break clause is part of the agreed terms.

We are finding that some clients are already in discussions with their landlords and agreeing terms.  We then see heads of terms in which the conditionality to break clauses need revision, as “traps have been sprung”. 

What to look for:
•           All rents – the conditionality that all rents have to have been paid by the break clause is adverse for a tenant.  Annual rent is defined.  You know when it is to be paid, and can police that.  Other sums due under the lease that may be defined as “rents” are perhaps not known.  Insurance rent should be known, although that will be dependent on being notified by the landlord.   Service charge payable on a quarterly basis will also be known and should be paid.  Other sums, such as ad-hoc service charge, or even interest payments on sums that may be late, are not necessarily known. 
–          There is no obligation on the landlord to remind the tenant of any sums potentially due under the lease and interest payments which have not been notified still remain due. 

•           Quarterly/monthly annual rent payments – the case of Marks & Spencer plc –v- BNP Paribas Securities Trust Company (Jersey) Ltd & Another (2014) illustrates when internal accounting practices may breach lease terms.  Once a break clause notice has been served tenants sometimes apportion the annual rent payable for the period from a particular rent payment  date to the break date.  Unless the timing is such that a full rent period (e.g. a quarter) expires on a  Break Date ( the date when the lease ends after a validly exercised Break Notice) apportioning the rent to be paid rather than paying the full rent due , is dangerous. .More often a break date would be within a particular rent period.  The apportionment of the annual rent payable on the rent payment  date immediately preceding a break date would mean the tenant has failed to satisfy the conditionality regarding payment of annual rents due.   The break clause would not have been validly exercised.
–          A full period’s rent should be paid to a landlord in accordance with the lease terms.
 –          A well-drafted break clause should provide that the landlord reimburses the tenant for any rents paid by the tenant to the landlord for the period post the break date. 

•           “To comply with all tenant’s covenants” – it is still surprising to see the conditionality that the tenant has to have had complied with all its obligations under the lease.  There is most likely something under the lease that the tenant has failed to do.  It could be decorating with two coats of paint rather than three, as an example.  The point on interest above is another example.  A tenant’s accounting department may not realise that the landlord has received the rent a day or so later than required. Due to the timing, interest may be due.
 
Unless a landlord is in a particularly dominant position in negotiations and can dictate this conditionality, the tenant should be aware that its effect could be to make the break clause exercisable and thus potentially worthless.

There are other considerations to be borne in mind, which we are happy to discuss further should any negotiations be ongoing. 

If you have any questions or queries in relation to this blog, please do get in touch – by telephone on 0161 926 9969 or by email to Johnl@mlplaw.co.uk

Further Post-Lockdown Considerations for Commercial Property

Welcome to our series of blogs, addressing post-lockdown issues from a legal perspective.  This week sees the latest blog, from our MLP Commercial Property team following on from their previous blog on ‘Considerations for Landlords, Business Owners’ and Tenants’ Post-Lockdown‘.

There are two areas which have been highlighted in various commentary over the past year involving insurance provisions and rent review/rent suspension in leases.

Insurance

A landlord usually insures their premises and recovers the cost of the insurance from the tenant.  As businesses have been affected by the lockdown since March 2020 and the closure of certain businesses deemed to be non-essential, tenants have looked at their leases to see if they can claim benefit of the insurance for which they have been paying and in particular the rent suspension provisions.

What has been clear is that the Pandemic effect was not something generally foreseeable in the marketplace.

The standard insurance provisions essentially cover damage to the property by specified insured risks and if such occurs that a tenant could be entitled to the rent being suspended, with the landlord claiming such suspended rent from its insurer.

Through the case law we see that the “damage” is physical damage to premises and not the reduction in use or closure of premises resulting from a loss of income for a tenant due to the pandemic.  Thus the lease does not provide for suspension of rent in those circumstances nor can the landlord claim against the insurer.

Going Forward

It is clear to see that there are pandemic related provisions being proposed in new leases going forward and on any lease renewal and new leases, the tenants and their advisors should be considering the appropriateness of such Covid related provisions being incorporated into the lease.

The lease could provide that the rent should be suspended during any period whether there is an epidemic, a public health emergency or outbreak of communicable disease or by any Act of Parliament or statutory power including requirement to comply with UK Government guidance or the National Health Service or other health regulatory body guidance in respect of any communicable disease.

Consideration should be had if the insured risks under an insurance policy would cover the above and also if insurers would actually offer cover for the potential of premises having to close and tenants not being able to pay the agreed rent under the lease.  It could be difficult to define (How do you agree what is the trigger for rent suspension and for such rent to be repaid?). The landlord and tenant perspectives are different. What is the impact of any Government assistance?

No doubt going forward there will be more consideration of the effects of the pandemic and if there is any future similar event and how, if anything can be incorporated into documentation to give protection to both the landlord and the tenant.

There is also the impact on an institutional lease where funders require certainty of investment value.  What is the impact on value of pandemic oriented lease provisions?  It will be interesting to see how the institutions and funders are willing to be flexible in this area.

Rent Review

There will have been rent reviews due last year and in the early part of this year which most likely have not taken place.  Depending when the rent was last reviewed (if at all), it will be interesting to see what the market evidence is for the rent that should be payable on the open market between a willing landlord and tenant of a particular premises at the” Valuation Date”.

Commentary indicates rents may now be rising though interestingly, from what level?

If you have any questions or concerns relating to the above please don’t hesitate to get in touch on 0161 926 9969 or email johnl@mlplaw.co.uk.

Considerations for Landlords, Business Owners’ and Tenants’ Post-Lockdown

Welcome to our series of blogs, addressing post-lockdown issues from a legal perspective.  This week sees the latest blog, from our MLP Commercial Property team, looking at the implications of working from home for landlords and tenants.

Our blogs over the coming weeks will address a full range of topics across all our services – including our corporate, employment, commercial property, private client and family departments –  as we explore various post-lockdown challenges and opportunities.

As restrictions start to lift the burning question is “What is the new norm?”.

The impact of the pandemic in 2020 and going forward will shape a lot of people’s thinking as to how to organise their business matters and investments. An example of this would be determining the impact on their workspaces, seeking to maximise occupation of investment buildings and continued use of remote working options provided by IT (a possible blended approach to office/home working), just to mention a few.

A number of the 50 largest employers in the UK have already indicated that they are not planning to bring all their staff back into the workplace full time. However, some employers will want all the staff back in the office as before due to the nature of their business and the ethos within such business.

The pandemic has seen winners and losers. Some will have found their businesses having to, overnight in March 2020, adopt radical new ways of working which would not have been envisaged a few weeks previously.  Staff being required to work remotely and premises closing altogether: 

1     With the nearly overnight investment in IT to enable remote working, we do not see that those kind of investment will be ignored.  Where businesses have found that employees can work remotely (bearing in mind any positive or negative effects on productivity), future planning should be conducted to see if the business can still benefit from such position.

2     There will be companies that have had a notable increase in business due to their particular placement, product lines and services being offered.  More employees may have been taken on with expansion planned and more space needed.

3     Sadly there will be businesses that will be under contract for current premises that are simply too big or of a surplus to the what the business now needs, and therefore an unnecessary drain on budget.

Businesses may therefore be considering:

-expansion of business premises or relocation;

-reduction in business space.

Where a lease is due for renewal, that opens up interesting negotiations with the landlord. Where a business needs more space, the landlord they are currently under contract with may hold more space available in the office building, the retail park or industrial estate in the current location, and the landlord would surely be delighted to agree terms for additional space to be taken on.  There could also be usual discussion involving the existing lease and additional space to provide favourable terms for the tenant.  Relocation could be a possibility and the landlord may agree to not wait until the current lease expires.

Where sadly a business has found that its space needs to be less, then it needs to look closely at its lease to see what can be done.  Depending on the reason for a reduction and the space requirements, a conversation could be had with the landlord which might be amenable in a particular circumstance of varying the lease terms to retain a business rather than see the business being in dire straits and failing.

A landlord may be faced with a demand for specific types of premises and would want to manage its estate be relocating tenants with new differing needs and thus freeing up space for new tenants.  What is to be remembered is that landlords have invested in the property, be it pension funds or individuals for whom the income from the property impacts on the respective pension funds.

If a landlord is unable or unwilling to adjust the tenant’s terms under an existing lease, then the tenant should consider whether any unneeded space is suitable for underletting and what is the market for it.

Overall there are some interesting considerations that landlords and business owners/tenants will be needing going forward. As the saying goes “it is good to talk” and with these changing times there can be the opportunities for constructive conversations between parties

If you have any questions or concerns relating to the above please don’t hesitate to get in touch on 0161 926 9969 or email johnl@mlplaw.co.uk.

Further Delays in Enforcing Possession Orders’

The Public Health (Coronavirus) (Protection from Eviction and Taking Control of Goods) (England) Regulations 2020 provide that court enforcement officers and bailiffs will not be permitted to enter properties to enforce residential possession orders. The Regulations also prevent them from entering properties to take control of goods to pay money judgments.
The Regulations in effect give force to a “request” made last month by the Lord Chancellor, Robert Buckland, to enforcement officers not to enforce possession orders during the second national lockdown.


The Regulations are scheduled to remain in effect until 11th January 2021.
There are exceptions to the Regulations, albeit very limited in scope, which will allow possession orders to be enforced against trespassers (as opposed to those occupying under a tenancy agreement) and in circumstances where rent arrears amounting to at least 9 months’ rent – but crucially any unpaid rent arrears accrued after 23rd March 2020 must be disregarded.
During the first national lockdown, the courts did not hear residential possession claims. Any existing proceedings were stayed (i.e. put on hold) and no new proceedings could be issued.

This restriction was lifted in September. The courts have continued to hear possession proceedings during this second lockdown but the effect of the Regulations is that a landlord who obtains a possession order in the next few weeks will be unable to enforce it until January at the earliest.
Given the inevitable backlog which will have built up in the meantime, it is likely that even then there will be further delays in obtaining an eviction appointment.

Landlords remain able to serve notices to bring tenancies to an end – both under the “no-fault” section 21 route and in circumstances where the tenant is alleged to be in breach of the tenancy, using the section 8 route – but subject to certain limited exceptions the notice period required is six months, and that will remain the case until (at least) March 2021.

If you are a landlord and need advice on how to deal with a tenant that isn’t paying their rent or other tenancy issues, please contact Mark Turner on 0161 926 9969 or email markt@mlplaw.co.uk.

What is ‘unregistered property’?

Unregistered property is property that has not been registered at the Land Registry.

Registration of property with the Land Registry became a legal requirement between the mid-1950s and 1990 across the country depending on area. The effect is that all property in England and Wales must now be registered with the Land Registry in certain circumstances, as follows;

1. On sale or gift of the property
2. On mortgage
3. On the grant of a lease for a term of more than 7 years

Whilst it is not compulsory to register your property with the Land Registry if you are not doing any of the above, there are benefits to doing so anyway.

Why should I register my property?

The Land Registry guarantees the title to your property once registered and this guarantee is government backed. This means that if any of the information recorded about your property with the Land Registry is inaccurate and causes you a loss you will not be left out of pocket.

The effect of registering your property with the Land Registry is that all of the deeds are stored electronically in one central place, and so if the originals are lost or destroyed you can still prove your ownership. It can be extremely difficult and time consuming for loved ones to sell a property after the owner has passed away if the property is unregistered and the title deeds cannot be found.

Registration can also help to protect against property fraud as you can register for property alerts should the Land Registry receive any applications affecting your property. It is also possible to enter on to the register an anti-fraud restriction which is an additional security measure we particularly recommend if your property is unoccupied for extended periods or is not your main residence. The restriction means that the property can only be transferred or mortgaged if your solicitor confirms they are entirely satisfied it is you who has authorised the transfer or mortgage.

Voluntary registration of a property also makes any future sale a much simpler process as some buyers will ask that the property is registered before they purchase, a process which can delay a sale by many months in some cases. Property owners who voluntarily register their property also benefit from a 25% discount in the Land Registry fee for registration.

How can we help?

If your property is unregistered, please contact Katie Mitchell, Licensed Conveyancer, today on 0161 926 1562 or send an email to katiem@mlplaw.co.uk and we can provide you with a free consultation and quote for the registration of your property at the Land Registry.

How long should it take to sell my Business?

We’ve been involved in a number of transactions recently that, as I’ve reflected on the timescales involved, remind me that there is no ‘one size’ fits all when it comes to the timeline and course a transaction takes. From 2 days to (almost) 2 years!

I’m pleased to say that we’ve had a busy period of completing deals over the last few months.  Our clients and potential clients often ask out the outset – “How long will it take?”  (As well as “How much will it cost?”)

“It depends” is, sadly, my common reply. It really does depend on a number of different and variable factors in each unique transaction. It depends on the details in the transaction (each business, selling group and buying group are different with different motivations, different funding sources, different expectations).  It depends on the number of premises, how they’re owned, what’s happening to them as part of a deal; it depends on the employees, again how many of them and what changes (or measures) if any are being proposed in respect of them; it depends on the assets, the financing of the transaction, the litigation history (past current and threatened), and compliance (increasingly a worry for both buyers and sellers).

A sample of recent transaction all completed in the last few weeks – all were company transactions (not assets) and involved a number of sellers, and a corporate buyer:

One we engaged on terms to sell half their business in 2 days (from our instruction).

Another took 2 weeks from the seller and buyer entering exclusivity and agreeing heads of terms (although some of the due diligence had been carried out during the offer and negotiation phase).

Another took 2 months – within the norm for a transaction from instruction and agreeing heads of terms.

Yet another took just under 2 years – this was incredibly slow, in part a result of reluctant sellers, and a patient buyer.

With all the uncertainties in the macro economic environment it’s always advisable to aim for a swift and smooth transaction.  This can be helped by robust pre-terms due diligence process undertaken by the sellers and their advisers.

This enables the seller to proactively prepare its information pack and its replies to standard enquiries.  This allows the advisers to identify any potential issues early and deal with them in a timely and appropriate way (don’t risk them becoming a reason to allow the buyer to request particular protections for you or worse, chip the price).

Final tips: Both parties – Instruct solicitors who are experienced in corporate transactions.  Buyers – have your funding agreed and understand the key risks you’re undertaking.  Instruct your professional team to progress swiftly through due diligence.

For more information,

Contact our corporate team for a no obligation conversation: corporate@mlplaw.co.uk or 0161 926 9969 OR request a free copy of our guide to selling your business (email corporate@mlplaw.co.uk)

Or read our guide to selling your business here: https://smallbusiness.co.uk/buying-a-business-what-you-need-to-know-2479602/

To sell or not to sell: Considerations for Business Owners

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Embarking on a company sale can be a lengthy, complex and expensive exercise so good planning and preparation by business owners can help the process and, together with the appointment of an experienced transaction team, can ensure the transaction runs smoothly and efficiently, with minimum disruption to the target company business.

Planning for a Sale

  • Appoint the right advisors

It is important at the outset to appoint a team of people to deal with the sale.  The key people will usually include the following:

  • the legal advisers, with a corporate lawyer project managing the transaction, to deal with the legal due diligence exercise, drafting and negotiating the transaction documents and transferring the legal ownership of the shares/business
  • corporate finance accountants and tax advisers to advice on the best deal structure for sellers, deal with the tax and accounting treatment of the sale, prepare financial statements, deal with the financial due diligence and assist with the accounting and tax warranties
  • Consider available tax reliefs

The availability of tax reliefs may be a key factor in determining the best structure for the sale and your tax advisors can advise you in this regard.

  • Determining the value of the company

You will need to work with your accountants to determine a fair price for your business.  Consideration must be given to what value you are looking to realise on a sale, whilst being realistic about the price.

  • Pre-sale health check / due diligence review

It can be a useful process for sellers to undertake a company health check or pre-sale due diligence exercise, where the affairs of the company are investigated (as a buyer would) and any potential issues identified and dealt with prior to a sale. Look out for our further blog on Preparing for a Share Sale.

  • Structure of the Sale: Shares or Assets?

It is generally more attractive to business owners to sell the shares of the Company, rather than just certain assets, although this depends upon various considerations.  Please refer to our blog Buying or Selling a Business: Shares or Assets.  https://www.mlplaw.co.uk/buying-or-selling-a-business-shares-or-assets/

The Sale Process

  • Initial agreements

Confidentiality Agreements or Non-Disclosure Agreements (NDA) – the sellers should get a potential buyer to sign a Confidentiality Agreement or NDA before providing the buyer with information on the target company.

Heads of Terms / Letter of Intent – these should set out the principal terms of the deal agreed between the sellers and the buyer.  Although large section of the Heads are not legally binding, they do form the basis of the Sale & Purchase Agreement.

  • Due Diligence

This is the buyer’s investigations into the target company and will involve legal, financial and commercial due diligence.  The buyer’s legal advisers will forward a legal due diligence questionnaire to the sellers’ advisors and the sellers will need to undertake a long and detailed process to respond to all the questions raised and provide all the relevant supporting documents.

  • Sale & Purchase Agreement

The main contract setting out the terms of the sale and purchase of the business will be the Share Purchase Agreement on a sale of shares or the Asset Purchase Agreement on a sale of business and assets.

  • Disclosure Letter

The Disclosure Letter is where the sellers to make disclosures against the warranties they give in the Sale & Purchase Agreement and such disclosures will, where appropriate, qualify these warranties

  • Signing / Completion

Once all the key documents have been prepared, negotiated and agreed and the buyer has the relevant funds to make the purchase, the documents can be signed and exchanged.  Often in corporate transactions, exchange and completion will be simultaneous.

For a more in depth look at this subject please see our Guide to Selling a Business, which is available upon request. For help and advice on ‘To sell or not to sell: Considerations for Business Owners’, please speak to our Corporate and Commercial team by emailing commercial@mlplaw.co.uk or calling 0161 926 9969.