Education briefing - Possession Proceedings and Rent Recovery During the Coronavirus Pandemic

• United Kingdom

• Education - Briefings
• Education - Coronavirus

01-10-2020

Introduction

Since March this year, various new laws have been implemented in England to mitigate the increasing effects of the coronavirus pandemic. This has necessarily had a considerable impact on the procedures and remedies usually available to landlords where a tenant fails to pay rent and other sums due under their tenancy, including the ability to obtain re-possession of their properties - residential and commercial alike. This note considers how these legislative changes will impact the education sector and covers the law applicable to England.

Extension of the minimum notice period – residential

The Coronavirus Act 2020 (“the Act”) has extended the usual notice which needs to be given to a tenant to terminate their tenancy. The relevant provisions are in force until 31 March 2021.

From 29 August 2020, landlords will need to give a minimum notice period of six months to tenants (subject to a limited number of exceptions detailed below). This notice period has effectively doubled since between 26 March 2020 – 28 August 2020, where the minimum notice period to terminate most tenancies was at least three months.

The extended notice periods apply to a range of tenancies, however those tenancies which will be most relevant to students who let accommodation from private providers/private landlords will be Assured Shorthold Tenancies (ASTs) and therefore this note focuses upon the effect of the Act upon ASTs.

The extended notice period will apply in all the case of all ASTs, except for in cases involving: (a) anti-social behaviour; (b) riot, fraud, or domestic violence; (c) at least six months’ rent being unpaid; and/or (d) a failed immigration check, in which cases the notice periods are much shorter.

The extended notice period will not apply to lettings of student halls by educational institutions to students. Such lettings are usually under licences to occupy, which are excluded from the scope of extended notice periods within the Act.

Even where students occupy student halls under a tenancy agreement (which will be a common law tenancy i.e. one which falls outside of the statutory regimes), those tenancies will still not be caught by the extended notice periods as they are not caught by the Act.

Therefore educational institutions wishing to evict students who occupy student halls, will be able to serve notice to quit in accordance with the terms of the licence/tenancy agreement in the usual way. If the student fails to vacate their hall in accordance with the notice to quit, the institution will be required to issue proceedings for a possession order since it is unlawful to evict a person from residential property without a court order.

Suspension of possession proceedings - residential

Since 27 March 2020, all new and existing proceedings for repossession of residential property were automatically stayed (subject to a limited number of exclusions), which has prevented landlords from being able to progress their possession claims, or, in the case of those landlords who already have possession orders, from being able to enforce those orders. However, as of 21 September 2020, this stay has now been lifted. It is anticipated that the courts will experience significant delays in the coming months in dealing with the inevitable backlog caused by the automatic stay, and this will have a consequential effect on the time taken to secure possession of a property.

Following the lifting of the stay, the Civil Procedure Rules have been amended and a new Practice Direction has been introduced (Practice Direction 55C), which sets out temporary provisions in relation to possession proceedings in response to the coronavirus pandemic. The new Practice Direction is in force between 21 September 2020 – 28 March 2021.

This dictates the steps required to ‘reactivate’ existing possession claims, as well as to issue new possession claims.

For any claims brought before 3 August 2020 in which a final possession order has not been made, a ‘reactivation notice’ will be required so that the claim can be listed, relisted, heard or referred to a judge (as the case may be). Amongst other things, the notice will have to set out any knowledge held about the extent to which the pandemic has had an effect on the defendant. Reactivation notices are not required where a final possession order has already been made and therefore immediate steps can be taken to enforce such possession orders if required. However, it is important to note that a new requirement has been introduced to the Civil Procedure Rules as of 20 September 2020 to require a ‘notice of eviction’ to be delivered to the relevant premises, at least 14 days before the writ or warrant of possession is executed as a general rule.

For claims brought on or after 3 August 2020, the Claimant must bring to the possession hearing a notice which confirms the knowledge they have as to the effect that coronavirus has had on the Defendant and their dependants. They must also serve this notice on the Defendant(s) not less than 14 days prior to the hearing.

OfS guidance on student accommodation during the pandemic

At the early stages of the pandemic, the Office for Students (“OfS”) published a coronavirus briefing note on student accommodation on 22 April 2020, which looked at the ways in which educational institutions were supporting students during the outbreak and signposted to sources of advice and information. The note did not constitute regulatory guidance, however it emphasised the need for transparent communications with students and in relation to accommodation, emphasised a need to (amongst other things):

• keep clear up-to-date information on the maintenance and cleaning of accommodation;

• ensure detailed information is available on how to self-isolate in a house with communal areas, and the support available to students;

• keep regular contact with vulnerable students, tailored to their particular needs;

• show how the institution is working with private landlords/student accommodation companies to ensure that students are treated fairly;

• show how students will be helped if they cannot pay their rent; and

• provide support on how students can maintain their well-being, physical and mental health during social distancing.

This guidance will continue to be relevant to education institutions as the wide-reaching effects of the pandemic continue to affect students and institutions alike.

Commercial forfeiture moratorium

The government has imposed a moratorium on landlords being able to forfeit commercial leases due to non-payment of rent. This does not however restrict a landlord being able to forfeit for breach of other lease covenants (for example breaches of the alienation covenants, repairing covenants etc., subject to any other statutory restrictions). Following a number of extensions, the Government has recently announced that the moratorium will remain in place until 31 December 2020.

Unfortunately some tenants are viewing the moratorium as being a ‘rental holiday’ since landlord’s remedies (as we will come on to below) for non-payment of rent are severely restricted during this time, however the rent payments and/or any other sums due under the lease continue to accrue as normal.

The moratorium applies to all premises to which Part II of the Landlord and Tenant Act 1954 (the “1954 Act”) applies. This therefore covers all business leases for a term exceeding six months, whether or not these have been ‘contracted out’ of the security of tenure provisions of the Act (ss 24 – 28).

During the period of the moratorium, a landlord can still take action against a non-paying tenant to recover payment of any arrears and such remedies include, but are not limited to:

• Commercial Rent Arrears Recovery (“CRAR”) (subject to the current restrictions imposed by the Act);

• calling on rent deposits;

• pursuing guarantors;

• suing for non-payment of rent or of any other sum due under a lease; and

• serving a statutory demand in relation to non-payment of any principal rent or of any other sums (subject to the current restrictions on statutory demands and winding-up petitions – see below).

These options therefore remain available to any institutions whose commercial tenants are in arrears.

Statutory demands and winding-up petitions (Corporate Insolvency and Governance Act 2020)

There is currently a blanket ban in place on the service of statutory demands for the purpose of presenting winding-up petitions. Statutory demands can still be served if they are not being used for the purposes of presenting a winding-up petition, however there would be limited benefit in serving a statutory demands in these circumstances.

There is also currently a temporary prohibition on the presentation of winding-up petitions based on a debtor company’s inability to pay its debts (i.e. rent), unless it can be shown that there are reasonable grounds for believing that COVID-19 has not had a financial effect on the company, or that the debt issues would have arisen in any event.

The ban and temporary prohibition was initially put in place between 27 April 2020 (but retrospectively applying to statutory demands served from 1 March 2020) and 30 September 2020. However, this has now been extended to apply until 31 December 2020.

The government has not announced that it plans to extend the relevant period any further beyond 31 December 2020. If the period is not extended any further, the powerful remedy for a creditor to serve a statutory demand and/or present a winding-up petition will once again be available to landlords to seek to recover any rent arrears owed in the new year.

Commercial rent arrears recovery (“CRAR”)

CRAR is also a remedy available to landlords against defaulting tenants. This is a procedure whereby a landlord is able to recover arrears owed by a tenant by taking possession of and selling a tenant’s goods. This was previously available to landlords once the amount of arrears was equal to seven days’ rent.

On 24 June 2020, the amount needing to be unpaid was increased to an amount equivalent to 189 days’ rent.

However, from 29 September 2020, this amount will increase to 276 days' rent and will increase further to 366 days' rent from and including 25 December 2020.

Summary

The legislative changes implemented are highly relevant to educational institutions as landlords and tenants of both residential and commercial property. It is clear that the numerous restrictions imposed are intended to assist tenants in what is a very uncertain time. However, these restrictions necessarily limit many avenues usually available to landlords to protect their own interests and ensure that landlords can take action against defaulting tenants.

As outlined above, there remain various ways for landlords to protect their interests, and some of the restrictions are either expiring or may be due for imminent update. However, it remains to be seen how these provisions will evolve over the coming months.