REAL ESTATE LITIGATION: An Introduction

Covid-19 pandemic 

The outbreak of Covid-19 (coronavirus) has caused unprecedented disruption and economic shock across the world. The effect on the property market has been profound, with little good news this year.

The property market effectively stopped during lockdown: viewings and sales ground to a halt, mortgage companies pulled their products, and loans were restricted. According to Nationwide Building Society, property values went down by 0.1% year on year and the average home value had the biggest monthly decline since the financial crisis in 2009.

Many tenant businesses have failed and it seems likely that others will follow. A number of household names have already disappeared from the high street and, with many office workers having switched to remote working, thereby reducing demand for commercial space, a fall in commercial rents seems likely.

The full extent of these impacts is going to take some time to become apparent. The Government has announced a number of measures to seek to ease the impact, including stamp duty reductions, business rates relief for retail, hospitality or leisure businesses and new planning laws which will mean full planning applications will not be required to demolish and rebuild unused buildings. The effectiveness of these and other measures will shape the future of the property market.

Covid-19’s impact on property litigation 

The Covid-19 pandemic and lockdown have had profound effects on the functioning of the justice system. Courts have had to close, reduce and adjust their operations. In addition to all the changes relating to remote hearings, there has been a flurry of legislation and regulations affecting property litigation.

The Coronavirus Act 2020 received Royal Assent on 25 March 2020. This Act has severely curtailed the ability of landlords to evict both commercial and residential tenants during the first five months of the pandemic, whether by court action or peaceable re-entry.

Perhaps even more draconian from landlords’ perspectives has been the stay of possession claims imposed by PD51Z. This stay has affected the majority of all possession claims commenced under part CPR part 55, including appeals and enforcement.

The new temporary PD55C deals with possession claims following the lifting of the stay on 22 August 2020. The changes include, amongst other things, a suspension of the standard period between issue of a claim form and hearing, which would usually be not more than eight weeks; long delays are anticipated.

How the courts will deal with the large backlog of cases and what is anticipated to be a large number of new possession claims remains to be seen. The need to ensure effective access to justice has rarely been greater or more acute.

Brexit  

The United Kingdom left the European Union on 31 January 2020; this did not put an end to the ‘Brexit uncertainty’. The UK is now in the transition period, but this will end on 31 December 2020. The Government’s stance is that there can be no extension beyond this date. With no trading deal yet having been agreed, the threat of 'no deal' continues.

If the UK and the EU fail to reach any agreement, it seems likely that the UK property market will be hit by a double-whammy: crashing out of the single market in the middle of a pandemic. If that is what happens, there is every prospect of the market returning to post-2008 market crash intransigence, with little investment and those holding assets ‘land-banking’ in the hope that the market picks up.

Law Commission reform 

On 21 July 2020 the Law Commission published its three long-awaited reports on leasehold ownership:

• Leasehold home ownership: exercising the right to manage
• Reinvigorating commonhold: the alternative to leasehold ownership
• Leasehold home ownership: buying your freehold or extending your lease

The Commission’s overarching recommendation was the need to reinvigorate the concept of commonhold – a form of freehold ownership which enables individual properties within a larger building to be owned outright, and with a structure to govern intra-property relationships and manage common parts. The recommended reforms would have commonhold replace leasehold for newly-built flats and give leaseholders a route out of leasehold ownership by making it easier to convert to commonhold.

The recommendations also include improving the current system for existing leaseholders by refining the process by which leaseholders can buy the freehold or extend their lease through an improved enfranchisement regime, making it simpler and cheaper for leaseholders in flats and houses. They would also make it easier and cheaper for leaseholders to take over the management of their building by exercising the right to manage.

Nevertheless, with Covid-19 and Brexit keeping Parliament occupied, it remains to be seen whether the Commission’s recommendations will be acted upon any time soon.

Development  

The housing shortage has been exacerbated by the pandemic, with many housebuilding sites having been suspended during the lockdown. ONS figures indicate that private new housing construction output fell to 41% across Great Britain. The recovery in output is lagging.

Housebuilders will need confidence in the sales market before the number of sites starts to increase. With the pandemic and Brexit saga continuing, it is difficult to see the development sector recovering in the near future.

Mortgage repossession 

Many borrowers have faced payment problems during the pandemic. The Financial Conduct Authority has published updated guidance for mortgage lenders on dealing with customers in the exceptional circumstances arising out of Covid-19. Key points include customers’ right to request a payment holiday and the ban on lender repossessions of homes to continue until 31 October 2020.

The question is, what will happen after this date? In the absence of further legislative intervention, the court’s jurisdiction to prevent a mortgagee taking possession is limited. With falling house prices, which may result in negative equity, there could be a bleak time ahead for struggling home owners.

Private rented sector 

The Coronavirus Act 2020 amends the Rent Act 1977, Protection from Eviction Act 1977, Housing Act 1985, Housing Act 1988 and Housing Act 1996 to lengthen the relevant statutory notice which must be given as a precursor to possession proceedings for most residential tenancies to three months. This includes Section 8 and Section 21 notices under the Housing Act 1988. This period can be extended up to six months.

The Government has also announced that, until the crisis caused by the pandemic has passed, the Government will not be introducing the Renters' Reform Bill into the House of Commons for debate. It follows that the proposed scrapping of Section 21 evictions is now on hold.

Electronic Communications Code 

In 2019 the Upper Tribunal and Court of Appeal started to put flesh on the bones of the Electronic Communications Code; however, as some uncertainties were clarified, new areas of doubt have arisen.

It appears that growing tensions between landowners and operators will continue, with an increasing number of Code cases appearing before the Upper Tribunal. Eyes will be firmly on the appeals in Cornerstone v Compton Beauchamp (due to be heard in the Supreme Court next year) and Cornerstone v Ashloch (to be heard by the Court of Appeal in January 2021). Furthermore, it appears likely that there will be an increase in the number of Code cases relating to disputes over valuation.

With the roll-out of 5G there may be the need for further legislation to seek to resolve the apparent impasse between landowners and operators under the Code.