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 31^st 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 30^th 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 31^st 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.