COVID-19: Measures to protect commercial tenants, adjournments and extensions of time

Chris de Beneducci Call: 2015

Maxwell Myers Call: 2016

Contact the clerking team

In this bulletin, Maxwell Myers discusses the recent announcement of additional measures designed to protect commercial property tenants, whilst Chris de Beneducci discusses the obtaining of adjournments and extensions of time during the pandemic.

Should you wish to discuss any of these topics, or raise any other queries, do not hesitate to contact either the clerking team (+44 (0)20 7420 9500 or clerks@selbornechambers.co.uk) or any member of Chambers. Please rest assured that Selborne Chambers remains fully operational and very much open for business.

Mark Warwick QC

Additional measures to protect commercial tenants

On 23 April 2020, the Ministry of Housing, Communities and Local Government issued a press release announcing the introduction of additional legislation to prevent the minority of commercial landlords from deploying “aggressive rent collection” whilst the lockdown continues.

Business Secretary, Alok Sharma, stated that:

“In this exceptional time for the UK, it is vital that we ensure businesses are kept afloat so that they can continue to provide the jobs our economy needs beyond the coronavirus pandemic.

 “Our unprecedented package of support can help commercial landlords, including through the recent expansion of the Coronavirus Business Interruption Loans Scheme.

 “I know that like all businesses they are under pressure, but I would urge them to show forbearance to their tenants. I am also taking steps to ensure the minority of landlords using aggressive tactics to collect their rents can no longer do so while the COVID-19 emergency continues”.

The principal changes announced include:

1. the restriction of landlords’ ability to commence Commercial Rent Arrears Recovery (“CRAR”); and
2. a moratorium on the service of statutory demands on commercial tenants.

The announcement comes several weeks after the Coronavirus Act 2020, which introduced a range of measures designed to protect commercial tenants, came into force, on 26 March 2020. Principally, section 82 of the 2020 Act restricts a landlord’s ability to forfeit relevant business tenancies during “the relevant period” for non-payment of rent. The relevant period is defined under section 82(1) as beginning with the day after the day on which the Act was passed and ending on 30 June 2020 (though this period may well be extended, particularly in light of the Prime Minister’s announcement on 10 June 2020 that no changes would be made to the hospitality sector until July at the earliest).

Further, Practice Direction 51Z, which was brought into force on 27 March 2020, provided that for a period of 90 days commencing on 27 March 2020, all proceedings brought under CPR Part 55 (later amended to exclude (a) claims against trespassers to which rule 55.6 applies, (b) applications for interim possession orders, and (c) applications for case management orders where directions are agreed) would be stayed.

Commercial Rent Arrears Recovery

CRAR is procedure in which, if a tenant is in arrears of rent of seven or more days’ rent, a landlord is entitled to serve a notice demanding payment. If the sum is not paid in accordance with that notice, the landlord may instruct an Enforcement Agent to seize assets belonging to the tenant and sell them at public auction, with the proceeds of sale being used to repay the outstanding arrears.

On 24 April 2020, the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 were laid before Parliament and came into force on the same day. The effect of these measures is to extend the level of arrears which entitles a landlord to invoke the CRAR process from 7 days’ rent to 90 days’ rent, to give commercial tenants additional breathing space during the lockdown period.

Statutory demands

The Business Secretary also announced a moratorium on the service of statutory demands between 1 March and 30 June 2020 and the presentation of winding up petitions between 27 April and 30 June 2020 against tenants who are unable to pay their rent as a result of COVID-19.

The additional measures will be implemented by the Corporate Insolvency and Governance Bill and, though its precise wording yet to be finalised, the Government press release provides that:

1. the moratorium applies only to commercial landlords;
2. there is no absolute ban on the presentation of winding-up petitions; rather, winding-up petitions will be reviewed by the Court and any petitions where the company’s inability to pay is as a result of COVID-19 will automatically be dismissed (though it remains unclear, presumably the burden of proof will fall upon the Company to demonstrate this.);  and
3. the Bill does not appear to apply to an action against a guarantor.

Data published by the Estates Gazette has suggested that the new measures are likely to hit the public purse and individual landlords far greater than expected. Melanie Leech, chief executive of the British Property Federation, has also called on the Government to rethink both.

Adjournments and Extensions of Time

Introduction

The coronavirus pandemic has caused enormous disruption to the ways in which we are all accustomed to conducting litigation. In many cases, the practical ability of one or more parties to prepare for trial has been significantly compromised; and remote hearings are recognised to be ill-suited to certain types of dispute (not to mention certain types of litigant too). To what extent can these and other coronavirus-related issues be relied upon to secure adjournments or extensions of time?

Not only has there been statutory intervention in this regard since lockdown was announced on 23 March 2020, but the relevant principles have also been the subject of a number of important judgments. At present, the key reference points are:

1. Practice Direction 51ZA; and
2. The judgment of HHJ Eyre QC in Municipio de Mariana & ors v. BHP Group PLC & ors [2020] EWHC 928 (TCC) (“Municipio“).

Practice Direction 51ZA

Practice Direction 51ZA, which is effective until 30 October 2020, varies CPR r.3.8 so as to allow parties to agree, prospectively and in writing, extensions of time of up to 56 days (so long as no hearing date is put at risk). If a hearing date is put at risk, or if a longer extension of time is sought, then the permission of the Court is required.

On any such application for permission (which is to be considered initially on the papers), the Court will “in so far as compatible with the proper administration of justice … take into account the impact of the Covid-19 pandemic when considering applications for the extension of time for compliance with directions, the adjournment of hearings, and applications for relief from sanctions”.

That is the sum total of the guidance actually provided by PD51ZA, despite the promising wording of its Para. 1(b). We then look to the case law to put flesh on these bare bones.

Municipio

The Municipio proceedings, which have been described as the largest class action ever brought in England, arise out of the collapse of the Fundão Dam in Brazil in November 2015.

The Defendants were required to serve reply evidence in support of an interim application for a stay on jurisdictional grounds by 1 May 2020. The Defendants applied for that deadline to be extended to 19 June 2020 “in light of the difficulties said to have been caused by the Covid-19 pandemic and by the measures put in place to address it”. Such an extension would require the adjournment of the application hearing, which was listed for 8 June 2020.

In resolving the Defendants’ application, HHJ Eyre QC began by emphasising that the starting point remains the overriding objective, i.e. “the requirement that cases are to be dealt with justly; in ways which are proportionate to the amounts involved, the importance of the case, and the complexity of the issues; and expeditiously and fairly”. That was the context in which PD51ZA should be applied.

HHJ Eyre QC then briefly reviewed the case law to date on coronavirus-related applications for adjournments. Synthesising those decisions, the Judge provided answers to two related questions.

First, at [24] the Judge considered the circumstances in which a hearing should be dealt with remotely or should instead be adjourned until a face-to-face determination was possible. The Judge concluded that the following principles applied:

1. Justice delayed is justice denied: regard must be had to the importance of the continued administration of justice.
2. The extent to which disputes can in fact be resolved fairly by way of remote hearings should be recognised.
3. The Courts must be prepared to hold remote hearings in circumstances where such a step would have been inconceivable only a matter of weeks ago.
4. Before concluding that a just determination cannot be achieved via a remote hearing, the Court should rigorously examine the possibility of (and the practicalities involved in) running such a hearing justly.
5. Whether there can be a fair resolution by way of a remote hearing will be case-specific. A multiplicity of factors will come into play and the issue of whether and if so to what extent live evidence and cross-examination will be necessary is likely to be important in many cases. There will be cases where the Court cannot be satisfied that a fair resolution can be achieved by way of a remote hearing.

Secondly, at [32] the Judge considered the circumstances in which the Court should allow extensions of time in the context of the coronavirus pandemic. The Judge concluded that such applications should be assessed against the following nine principles:

1. Where realistically achievable, the objective is to keep existing deadlines (or else to minimise extensions of time).
2. The Court can expect legal professionals to make appropriate use of modern technology (with regards to remote working and contact with witnesses and others).
3. The Court can expect and require legal professionals to roll up their sleeves or to go the extra mile to address the problems encountered in the current circumstances. Lawyers can be expected to go further than they might otherwise be expected to go in normal circumstances and particularly so where there is a deadline to be met (and even more so when failing to meet the deadline will jeopardise a trial date).
4. The same considerations will apply to expert witnesses who are professionals, but not necessarily to litigants-in-person.
5. The Court should be willing to accept evidence and other material which is rather less polished and focused than would otherwise be required if that is necessary to achieve the timely production of the material.
6. The Court must also take account of the realities of the position and while requiring lawyers and other professionals to press forward care must be taken to avoid requiring compliance with deadlines which are not achievable even with proper effort.
7. The Court must be conscious that it is likely to take longer and require more work to achieve a particular result (such as the production of evidence) by remote working than would be possible by more traditional methods.
8. The Court must have regard to the realities of working from home during the coronavirus pandemic (such as caring responsibilities and varying degrees of IT provision).
9. Even in current circumstances, an extension of time which requires the loss of a trial date will be granted much less readily than an extension of time which does not have that effect. Before granting such an extension, the Court must be confident that there is no alternative which is compatible with dealing fairly with the case.

Weighing the parties’ submissions in light of the principles set out above, HHJ Eyre QC was satisfied that “this [jurisdiction application] is clearly a matter which is capable of being fairly determined in a remote hearing” but that “even when all proper allowance is made for the use of technology and for the making of extra efforts the exercise of preparing the reply evidence will take significantly longer than was provided for in the timetable [previously] laid down”. The Judge did not, however, grant the full extension of time sought by the Defendants: their evidence was to be served in the week commencing 8 June 2020.

Conclusion

The principles which emerge from Municipio are clear – but, despite the result, it is in some ways an unhelpful authority for applicants given the nature and size of the proceedings concerned. Not all applications for extensions of time will involve Justices of the Brazilian Supreme Court separated from their staff and library, or law professors dealing with the impact of the pandemic on their 100-strong firms, or parallel legal teams staying up all night to watch proceedings online from Australia.

The thrust of the decision must therefore be that, outside complex international litigation, adjournments and extensions of time will be difficult to obtain on coronavirus-related grounds. As discussed by our colleague Nicholas Towers here in the context of construction adjudications, genuine obstacles to the remote preparation and presentation of the case will need to be identified, together with explanations why those obstacles cannot reasonably be surmounted.

Bearing that in mind, the factors most likely to lead to a coronavirus-related adjournment or extension of time in the standard run of cases will presumably be (i) increased care/childcare responsibilities whilst working from home, (ii) the status of one or more parties as a litigant-in-person, and (iii) limited access to remote working facilities.

Two further points should be made by way of conclusion. First, adjournments are of course still available on grounds which do not relate to coronavirus (and, for example, a legal team which has been instructed on a heavy application late in the day should still consider that option). Secondly, the principles set out above relate primarily to business and property work. For any matters in the Family Courts, bear in mind that the approach in that jurisdiction has understandably been less gung-ho, with more emphasis placed on the inappropriateness of remote hearings for certain sensitive matters: see, for instance, Re: B (Children) (Remote Hearing: Interim Care Order) [2020] EWCA Civ 584.