The COVID-19 pandemic has had a seismic impact on the real estate sector. As the pandemic enters its third year, real estate litigation specialists continue to grapple with an ever-changing legal landscape.
Among the very first measures taken by government were the suspension of centuries’ old remedies that underpin property rights, which themselves are the foundation for the UK’s attractiveness as a stable and predictable place to invest long-term. While government policy has been to protect businesses and save jobs, this has come at a substantial cost to the real estate industry. The statutory moratoria on forfeiture for unpaid rent and commercial rent arrears recovery (CRAR), as well as protection under the Corporate Insolvency and Governance Act 2020, provided breathing space for tenants but have left landlords exposed to an estimated £6.4billion of rent debt. The robustness of lease structures themselves have been challenged existentially by CVAs and new avenues of restructuring and insolvency.
In an unprecedented move, the government is now passing legislation (the Commercial Rents (Coronavirus) Bill) to impose a mandatory arbitration scheme for resolving disputes in relation to ring-fenced commercial rent debts. Under the scheme, due to come into effect in March 2022, arbitrators will have the power to waive or defer unpaid rent to preserve the viability of a tenant’s business where that is consistent with preserving a landlord’s solvency. The government has declined to prescribe the approach to be taken to assessing ‘viability’, which will inevitably need strategic thought and give rise to challenges to arbitration awards.
Waiting in the wings are a series of appeals against judgments obtained by landlords against tenants in respect of unpaid rent, which will resolve a wide range of legal issues arising out of the pandemic.
Moving away from pandemic-related issues, the cladding scandal has left upwards of £15billion of remedial costs to be allocated, and litigated, while the government has sought to introduce policies, assurance and assistance to assuage leaseholders and to get the ossified flat market moving again. The Building Safety Bill proposes a new regulatory framework for overseeing construction and building safety systems in relation to high-rise buildings.
This year should also see reforms to prohibit the payment of ground rents under new residential long leases under the Leasehold Reform (Ground Rent) Bill. Legislation that will substantially change the process for residential lease extensions and collective enfranchisement is also expected.
Property is in the gaze of policy makers, with the Landlord and Tenant Act 1954 under review and new forms of ‘commonhold’ property ownership also on the policy agenda. The moratoria on forfeiture, CRAR, statutory demands and winding up petitions were all political decisions, never taken before, and as we move into what may prove to be another turbulent year, we outline some of the significant legal and regulatory developments we can expect in the world of property litigation. To read our briefing for The In-House Lawyer in full, please click here or download a pdf version of the Winter edition of IHL.
Mishcon de Reya’s property and construction litigation team comprises seven partners and 14 lawyers. We are strategic thinkers, experienced negotiators and our trial experience is second to none. If we can help you or your business navigate the challenges ahead, please contact a member of the team.