Priya Sejpal Solomon Taylor & Shaw | Londres-Reino Unido
With the recent announcement of COVID-19 being declared as a national emergency, the situation globally is in a state of flux. Events are moving quickly and it is important to keep up to date with advice published by the government and regulatory agencies. In particular turmoil is the rental market which we shall explore in this guidance note.
In any tenancy related matter, the starting position is that unless the tenancy agreement provides otherwise, there is no prima facie duty on a landlord to offer concessions to a tenant in the event of a pandemic outbreak. Tenants are therefore bound by their tenancy obligations to include payment of rent, which of course, can prove to be taxing in a time like this where many are unable to pay rent after losing work or due to being in self-isolation.
Some tenancy agreements or leases may contain force majeure clauses which address circumstances where unexpected events prevent parties from fulfilling their contractual obligations. Such a clause can entitle parties to relief i.e suspension on contractual obligations or even delay or non-performance of the same. In certain circumstances even termination of a contract. Examples of force majeure clauses include wars or terrorist attacks. However, as to whether COVID-19 will amount to force majeure depends on the drafting and interpretation of that particular clause, but in most cases this is unlikely.
There is also the doctrine of frustration and whilst tenants may try and argue that COVID-19 has frustrated the purpose of the contract, it must also be said that this doctrine carries with it a very high threshold. In other words it will take more than just arguing that the contract has become difficult or expensive to perform and to date there have been no reported cases in England where a lease has been frustrated.
The above highlights the difficulties a tenant would face in withholding rent on the basis of force majeure or frustration and inevitably if rent is not being paid, a landlord will be entitled to evict.
Pressure is mounting on the government to introduce measures to support the rental sector in these uncertain times. This is a critical issue given that a quarter of all Londoners rent privately and 13 million rent privately across the country. It is going to be a question of “watch this space”.
The Chancellor of the Exchequer, Rishi Sunak, has said that the government shall do “whatever it takes” to stabilise the economy amid the COVID-19 pandemic to include offering a three month mortgage repayment holiday. Whilst this initiative is clearly welcome, the devil is in the detail as it remains to be seen how this will impact on the length of a mortgage term and what this will do to a borrower’s credit score. Clearly borrowers will need considerably more clarity on what they are signing up for.
Other landlords during this time will also be looking to rely on insurance policies, such as guaranteed income insurance. AXA, however, say that most insurance policies won’t cover viruses unless it has been expressly referred to in the policy. It is anticipated that policy wordings will be scrutinsed with many disputes to follow in the coming months over the scope and extent of policy coverage.
Practical tips for landlords
• check the tenancy agreement or lease and have particular regard to frustration and force majeure clauses (rare but worth checking)
• watch out for break clauses which could allow for early termination of a tenancy.
• seek specialist advice on mortgage repayment holiday schemes
• check the full extent of any applicable insurance policy for income protection
• keeping abreast of government advice and guidance
In the last few years, we have seen a major shift towards more tenant-friendly legislation with the implementation of Acts such as The Deregulation Act 2015 and the Tenant Fees Act 2019. I suspect that the Courts will continue to adopt this approach particularly during the COVID-19 climate. In fact, the government has just announced emergency legislation to potentially do the following:
• Stop any new possession claims (social and private tenancies) being issued at court for the next three months (at least).
• Introduce a new pre-action protocol for possession claims, to apply after the three months (or whenever) which will apply to private as well as social tenancies.
It is unclear as to whether this is applicable to existing possession claims and licensees or Rent Act tenants, and whether this will be limited to the post-crisis period. Further, it is not clear what is being proposed for those in the enforcement stage of their evictions.
Notwithstanding the above, we will be keeping a close eye on legislation and government proposals but overall landlords are encouraged to collaborate with their tenants and where possible, agree grace periods or concessions on rent. This recognises that simply terminating tenancies and replacing tenants for unfamiliar ones may actually lead to a lose-lose situation in any event. That of course assumes the landlord can even find a new tenant. Any agreements to offer concessions or alternative repayment plans should be well documented and is something that we, here at Solomon Taylor and Shaw, can assist you with along with any advice on this evolving area of law.
This note is not intended to constitute to legal advice. Please get in touch with the author, Priya Sejpal, if you require more specific advice on the matter.
Departamento de Comunicación28/05/2020
In Balms Abogados we wanted to celebrate the beginning of the end of confinement, sending our friends, family, clients and society, in general, a message of hope, optimism and confidence in the return to normality, not the new normality. And we could not think of a better way to do it than through music.