Despite society being locked down in the early part of 2021, legislative and court-related developments continued their steady flow. Perhaps inevitably, pandemic-related themes loomed large, with rent arrears, pandemic clauses and company voluntary arrangements all making their presence felt.
There were other high-profile battlegrounds too: planning, leasehold reform and business rates – where calls for reform of the system continue, as do the many ways in which property owners seek to mitigate their rates liability during vacant periods (Rossendale Borough Council and another v Hurstwood Properties (A) Ltd and others being one such example).
The debate on cladding and safety of high-rise buildings evolved, with the publication on 5 July of the Building Safety Bill – a significant piece of draft legislation which will have implications for landlords, including the requirement to appoint building safety managers, prepare safety cases for higher-risk buildings, and achieve a building assessment certificate for each occupied building.
Litigation in action
In the courts, telecoms again made its presence felt, with the appeal in Cornerstone Telecommunications Infrastructure Ltd v Compton Beauchamp Estates Ltd heading all the way the Supreme Court, and disputes under the Electronic Communications Code continuing to keep the Upper Tribunal (Lands Chamber) busy.
Meanwhile, Fearn and others v Board of Trustees of Tate Gallery – the famous case involving overlooking from the public gallery at the Tate Modern – was heard by the highest court in December, with judgment eagerly awaited in the New Year.
Two other notable cases went under Supreme Court scrutiny: TW Logistics Ltd v Essex County Council and another, in which an Essex quay was recognised as a village green, and Rittson-Thomas and others v Oxfordshire County Council, a hard-fought battle over the proceeds of sale of a former school site in Oxfordshire, donated long ago for educational use. In addition, the Court of Appeal heard the high-profile challenge to planning changes introduced in response to the pandemic in R (on the application of Rights: Community: Action) v Secretary of State for Housing, Communities and Local Government – another decision to look forward to in early 2022.
Question marks on reform
In one of the main legislative areas – leasehold reform – the year began promisingly, with the government issuing a press release on 7 January, which drew on the work of the Law Commission in the area. Although brief, it proposed a raft of reforms including abolition of ground rents and allowing leases of both houses and flats to be extended by 990 years. It also confirmed its intention to establish a “Commonhold Council” to prepare the market for the take up of commonhold as an alternative to leasehold.
As Nicola Muir, barrister at Tanfield Chambers, wrote in EG: “The announcement is scant on detail, but the proposals are truly revolutionary. There is no doubt that these reforms would tip the balance of power in favour of the homeowner and hopefully solve many of the problems which have evolved in the leasehold system over its 1,000-year history.”
Yet, despite its revolutionary promise, the legislation which will bring the leasehold changes into force has yet to take effect, with the Leasehold Reform (Ground Rent) Bill currently at its House of Commons report stage. The Commonhold Council, however, was launched in May.
In another key area – planning – there were multiple legislative developments, including changes to the use classes, most notably to allow a change from class E to class C3 (residential). These changes were brought into force on 1 August 2021 by the Town and Country Planning (General Permitted Development etc) (England) (Amendment) (No 2) Order 2021.
The Environment Bill – which seeks to provide a statutory footing for the protection and enhancement of the environment as well as establishing the Office for Environmental Protection to act as watchdog after the UK leaves the EU – finally received royal assent in November. While a commencement date is yet to be confirmed and secondary legislation is awaited, practitioners should in the meantime familiarise themselves with its key concepts, including biodiversity net gain, mitigation hierarchy and conservation covenants.
One key piece of draft legislation was missing though: the government’s response to its consultation on the August 2020 white paper, Planning for the Future. It is now anticipated in 2022 – along with the government’s Levelling Up white paper, which the government had stated in May would be published “later this year”.
Hannah Quarterman, partner and head of planning at Hogan Lovells, sums up the position: “As we entered 2021, there was a sense of expectation within the planning industry. Not only was there intrigue to see the full impact of the recent changes to the use classes order, and anticipation that the long-debated Environment Bill would finally become law, but, following publication of the planning white paper, we had been promised a radical overhaul of the planning system. I’ve been left somewhat disappointed.
“In the last year, first there seemed to be a watering down of planning reform proposals, then, when Michael Gove became secretary of state, an indeterminate pause in bringing them forward. And while we do have the Environment Act 2021, so much of the detail within that is still to be set out. In many important areas, we aren’t much closer to having answers than we were 12 months ago.
“We enter 2022 with very similar challenges to those facing the industry this time last year – a much maligned planning system, high streets requiring revitalisation, and environmental concerns constantly moving up the agenda. Hopefully 2022 can finally deliver on some of 2021’s potential.”
The Covid rent quandary
But without doubt, the biggest talking point of 2021 – and the most fruitful source of litigation – has been the mountain of unpaid rent arising out of the devastating financial impact of the pandemic.
The sense is that, for the most part, commercial landlords and tenants have – in-keeping with the government’s Code of Practice, which encourages negotiation – adopted a sensible approach to handling rent arrears, which has kept them out of the courtroom.
Nevertheless, with an estimated £7bn in unpaid commercial rent, it was inevitable that some landlords – and, indeed, tenants – would take action to protect their own interests. In terms of the former, with so many of the conventional methods of commercial rent arrears recovery still off the table due to the extension of the moratorium until March 2022, a number of landlords brought straightforward court claims for summary judgment in the much-discussed cases of Commerz Real Investmentgesellschaft mbH v TFS Stores Ltd, Bank of New York Mellon (International) Ltd v Cine-UK Ltd and other appeals and London Trocadero (2015) LLP v Picturehouse Cinemas Ltd and others.
The tenants involved, which included a number of household names – such as, in two of the cases, the Cineworld/Picturehouse cinema chains – raised various ingenious defences, but ultimately met with resounding defeat: a strong indication that, if landlords seek judgment on arrears, they will get it. It will be fascinating to see if the Court of Appeal shifts that balance when it hears the combined appeal in Trocadero and Bank of New York Mellon in February.
Certain beleaguered retail and leisure tenants resorted to corporate restructurings in response to their plights, resulting in a number of landlord challenges to CVAs in the cases of New Look, the Regis hairdressing group and Caffè Nero (as well as an abandoned challenge to the National Car Parks CVA). In a related case, landlords of some Virgin Active premises complained that the gym group’s restructuring plan was unfair. While each case involves its own intricacies, the upshot remains that it is very difficult for out-of-pocket landlords to convince a judge to tear up a CVA voted for by a company’s creditors – though, again, it remains to be seen whether the Court of Appeal will alter the landscape, with battle set to resume in Lazari Properties 2 Ltd and others v New Look Retailers Ltd and others in March. As Mathew Ditchburn, partner and head of real estate disputes and the new chair of the Property Litigation Association told us in his EG Interview: “The days of CVAs being an easy win for tenants are over. The market has come to expect serious landlord opposition to them.”
The rise of pandemic clauses in lease renewals, seeking to stave off future disputes, also exercised the county courts in cases including WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellschaft MBH and Poundland Ltd v Toplain Ltd – surely a topic that the higher courts will begin to get their teeth into in 2022.
But when it comes to that £7bn bone of contention between landlords and tenants, perhaps a considerable share of it will be resolved not by litigation, but by arbitration. That is certainly the government’s intention, with its planned mandatory arbitration scheme for commercial rent arrears, having occupied the minds of commentators in recent months. But the scheme only applies to periods of lockdown, leaving more extensive durations of reduced footfall for many businesses – such as the one we are in right now, thanks to Omicron – still very much in dispute. And even then, many questions remain over how the scheme will work, whether enough arbitrators can be found, how they will be supported in what will be a challenging job, among others. The longer the pandemic lingers on, the more difficult it is to see how much of the arrears can ever be paid. As Ditchburn warned us, “I think we can expect a sharp correction as government support and protections fall away, leading to a greater number of company failures, restructurings and insolvencies.”
In addition, at the death – too late for our Top 10 Cases of the Year podcast – the Court of Appeal dismissed the high-profile challenge to planning changes introduced in response to the pandemic in R (on the application of Rights: Community: Action) v Secretary of State for Housing, Communities and Local Government.
