Wednesday, 6 May 2020

COVID-19: Proving Identity in Lockdown

Electronic signatures may be used, and take legal effect, in any documents which don’t need to be registered with the Land Registry or HMRC.

So this includes documents such as sale and purchase agreements; agreements for lease; options and pre-emption agreements; leases for a term up to 7 years (where easements are not being registered); ASTs and tenancies at will; licences to occupy and other licences; rent deposit deeds; side letters; guarantees; wayleave agreements; and rent review memos.

Electronic signatures cannot normally be used on deeds that have to be registered at the Land Registry, for example transfers; leases of more than 7 years; mortgages or charges and their discharge; and deeds of easement.

The Land Registry also has strict requirements on confirming identity.

To make things a little easier during the coronavirus pandemic the Land Registry has published temporary changes to its requirements for identity verification and execution of deeds, which follow recommendations recently made by the Law Commission.

The main changes are:

·       Rejection of applications – the Land Registry will not reject applications where evidence or confirmation of identity is missing, or incomplete, but will raise a requisition instead, although applications may still be cancelled where the applicant fails to comply with the requisition.

·       Verification by conveyancer – conveyancers must continue to complete application forms and provide evidence or confirmation of identity where possible, but the Land Registry will now accept Forms ID1 and ID2 completed up to 6 months before the date the application is made (it is usually only 3 months). Conveyancers may also verify someone’s identity by video call if they comply with certain conditions, which include completing and lodging a Form ID5 and keeping a screenshot photo of the person.

·       Verification by non-conveyancer – the Land Registry will now accept applications from non-conveyancers where the applicant’s identity has been verified by another non-conveyancer (who is working in, or has retired from, one of the recognised professions and is not related to the person being verified). They must complete either Form ID3 (for individuals) or Form ID4 (for corporate bodies), and those forms must not be more than 3 months old when the application is made.). Non-conveyancers may also verify someone’s identity by video call if they comply with certain conditions.

·       Witness signatures – where the law requires a deed to be signed “in the presence of a witness”, the Land Registry will continue to require a witness to be physically present at the moment of signing. A person can effectively witness a signature through a glass panel or window, if they can clearly see the signature being made.

·       Electronic execution of deeds - The Land Registry will accept, until further notice, transfers or other dispositionary deeds that have been signed in the following way. A signature page must be signed in pen and witnessed in person. The signature page is then copied, with a scanner or camera, to produce a PDF, JPEG or other suitable copy. Each party then sends a single email to their conveyancer, attaching the final agreed copy of the document and the copy of the signed signature page. Practice Guide 8 has more details on this method.

There may be other issues however that prevent the use of electronic signatures. For example, if a company’s constitution prevents it from doing so, or where a company executes documents by affixing a common seal. The relevant company documents will need to be changed first to allow the use of electronic signatures.

The importance of identity checks was a key consideration in the high profile 2018 cases of Dreamvar v Mischon de Reya and P&P Property Limited v Owen White & Carlin LLP. Anyone dealing with transfers of property must be mindful of the continuing need to be vigilant and alert to the dangers of property fraud.

This temporary relaxation of the rules by the Land Registry may be changed or withdrawn altogether at short notice.

Friday, 1 May 2020

COVID-19: Taking Control of Goods

The new regulations* governing the taking control of goods announced by the government in its press release on 23 April have now been passed.

I describe the press release in my previous blogpost.

Here’s how the new regulations affect commercial rent arrears recovery (CRAR).

CRAR is a means of enforcing the recovery of rent arrears at commercial property which replaced the old remedy of distress in 2014.

If rent remains unpaid after a landlord serves notice, the landlord can instruct an enforcement agent to recover the arrears by seizing control of the tenant’s goods and selling them at auction.

CRAR can only be used to recover the principal rent plus interest and VAT. It can’t be used to recover other arrears, such as service charge, insurance and dilapidations.

The 2020 regulations make the following changes.

·       The new regulations increase the minimum amount of net unpaid rent that must be outstanding before CRAR may take place from 7 days’ rent, under the previous rules, to 90 days’ rent. This increase lasts while protections from forfeiture for business tenancies are in place under the Coronavirus Act 2020.

·       Normally, enforcement agents are not permitted to take control of goods more than 12 months after the notice of enforcement is given, unless the court extends the period. Under the new regulations, an automatic 12 months extension is given where less than one month was remaining when the lockdown restrictions were imposed, or that point is reached while they are in force.

·       The new regulations automatically extend, for a period of six months, enforcement agents’ certificates in cases where these are within 3 months of expiry, while the coronavirus restrictions are in place.

·       The new regulations prevent enforcement agents taking control of goods at residential premises or on highways while the lockdown restrictions are in place.

Although the government has brought in significant restrictions on the methods of enforcement open to landlords where there are rent arrears during the coronavirus restrictions, in the absence of specifically agreed concessions or waivers, those amounts remain contractually due.

As things stand, once the restrictions are over, landlords will be able to resort to all the usual methods of enforcement if arrears remain outstanding.

Tuesday, 28 April 2020

COVID-19: No Winding Up Commercial Tenants

The government is introducing measures to protect commercial tenants from aggressive rent collection during the coronavirus pandemic.

Statutory demands and winding up petitions weren’t included in the temporary moratorium introduced by the Coronavirus Act 2020, which suspends the right for landlords to forfeit commercial leases for non-payment of rent until 30 June 2020.

The government announcement says that whilst most landlords and tenants are working well together to reach agreements on debt obligations, some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics.

To stop these unfair practices, the government is temporarily banning the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June 2020, where a company cannot pay its bills due to coronavirus.

The measures will be included in the Corporate Insolvency and Governance Bill.

The announcement specifically refers to “high street shops and other companies under strain” and the commentary in the announcement says it extends to both the retail and hospitality business. It also refers generically to “commercial tenants”. It’s therefore unclear at present whether this will cover all commercial tenants, as the temporary moratorium on forfeiture does, or be restricted to those sectors.

Any winding-up petition that claims a company is unable to pay its debts must first be reviewed by the court to determine why.

The new legislation will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of COVID-19.

So, it’s not an outright ban, although it will surely be difficult for any landlord now to contemplate such action.

It will be interesting to see how the new law will attempt to frame a distinction between those who can and those who cannot afford to pay their rent.

There is also no mention of any restrictions on applications to court for the appointment of administrators (which any creditor can do). Perhaps this will also be included in the new legislation? If not, it still potentially leaves corporate tenants exposed.

The new legislation to protect tenants will be in force until 30 June 2020,and can be extended in line with the moratorium on commercial lease forfeiture.

The government is also making changes to the use of Commercial Rent Arrears Recovery (CRAR) during the pandemic.

Secondary legislation will provide tenants with more breathing space to pay rent by preventing landlords using CRAR unless they are owed 90 days of unpaid rent.

Although the so-called “breathing space” won’t help tenants who pay their rent quarterly.

So far, the temporary measures introduced by the government have not taken account of the pressures landlords are now under to meet lending covenants.

The Financial Conduct Authority, the Financial Reporting Council and the Prudential Regulatory Authority have issued a joint statement encouraging investors and lenders to take into account the issues arising directly from the COVID-19 pandemic in responding to potential breaches of covenants.

The temporary measures described above do not affect a landlord’s entitlement to add interest to unpaid rent if the lease permits; sue the tenant and/or any guarantor for the debt; or withdraw sums held on rent deposit.

Tenants must also remember that this isn’t a rent holiday.

Landlords will still be owed rent and other payments at the end of the moratorium period.

If a tenant requires a rent holiday or rent suspension provisions, it will need to negotiate them with its landlord and agree a side letter or variation of the lease.

Whether landlords will agree to such concessions will be at their discretion, although they may themselves be constrained in reaching agreement by the financial covenants and other provisions in their own lending agreements and any superior lease.