Real Estate monthly digest – May 2020

HMRC have extended the deadlines for notifying an option to tax property made between 15 February and 30 June 2020

HMRC have announced temporary changes to the process for notifying an option to tax land and buildings during the COVID-19 pandemic. HMRC have both extended the deadline for notifying options to tax by 60 days and will also accept electronic signatures in appropriate circumstances.

Originally this measure applied to decisions to opt to tax made between 15 February and 31 May 2020 however HMRC updated its guidance on 27 May 2020 and extended this deadline to 30 June 2020.

Further details on these changes can be found here.

Webinar: Return to the workplace: operational issues and real estate implications (with Cushman & Wakefield)

As lockdown pressures begin to ease and industry prepares to return to the workplace, we consider the new narrative around real estate and the future of workplace. This webinar, which is now available on demand, sees us collaborate with Cushman & Wakefield in comparing developments across the globe. We look at examples of how different sectors in different jurisdictions are addressing the challenges ahead, and ask: are you recovery ready?

Key points from the webinar:

• Decreasing percentage of employees expected to return to office working in the short term
• Policies needed for commuting to, access to and social distancing at the office
• Organisations need a plan for every step of engagement with the building, from arrival to departure
• Employee confidence will be key eg cleaning regimes will become more visible
• Tech will play an increasingly important part, a theme we will pick up on 5 June (see below)

This is the first in a series of webinars in collaboration with Cushman & Wakefield looking at the new narrative around real estate and the future of the workplace. 

Our future webinars will cover:

5 June 2020: Filtering the signal from the noise: real estate and technology

19 June 2020: Distributed workforce and longer term impacts of COVID-19 on how and where we will work

3 July 2020: Building design and the role of PropTech in the longer term

You can choose and register for the webinars that are of interest to you here.

Major changes to UK insolvency legislation

The Corporate Insolvency and Governance Bill (the "CIGB") has now been published here. It falls neatly into two parts. Firstly, temporary measures intended to deal with specific issues arising from the COVID-19 pandemic. Secondly, permanent changes which were trailed during consultations carried out in 2016 and 2018, but never implemented. These permanent changes are intended to promote corporate rescues and restructurings, and the current economic circumstances have clearly been the catalyst for implementing them now.
Our understanding is that there will be further readings of the Bill but significant changes are not expected. It is therefore anticipated that the Bill will become law in late June/early July 2020.

Click here for a detailed overview of the insolvency measures in the Bill.  As expected following the recent Government announcement, included in the temporary measures are provisions that mean:

• Winding up petitions and winding up orders made between 27 April and 30 June 2020 will be void unless a petitioner can show that COVID-19 has not had a financial effect on the company, or, even if it has, that the relevant ground for winding up would have been satisfied anyway.
• Statutory demands cannot be relied upon as the basis for a winding up petition to the extent that they were served between 1 March and 30 June 2020.

In relation to the permanent measures it is worth highlighting that the Bill introduces a short 'breathing space' moratorium restricting the commencement of insolvency proceedings and legal action for businesses for an initial period of 20 business day (but which may be extended further (a) by the directors filing certain notices at Court towards the end of the initial 20 business day period or (b) after the initial period, with the consent of creditors or permission of the Court). 

Eligible companies will qualify for the moratorium if, in the directors' view, the company is, or is likely to become, unable to pay its debts. The company must also be capable of rescue, as the proposed Monitor (an insolvency practitioner who will have oversight of the moratorium) will need to confirm that, in their view, it is likely that a moratorium would result in the rescue of the company as a going concern. This is a change from the original proposal -- as it was thought that the moratorium would apply as a type of pre-insolvency process and that companies would need to be solvent to qualify.

The moratorium will prevent creditors from taking action, including enforcing security other than certain types of financial collateral (without the Court's permission). It will also prevent the commencement or continuation of legal proceedings (unless they are employment claims or the permission of the Court is obtained). During the moratorium landlords may not exercise a right of forfeiture by peaceable re-entry in relation to premises let to the company, except with the permission of the court (this is of course a separate measure from the current restriction on forfeiture contained in the Coronavirus Act 2020).  Rent remains payable during the moratorium and if it cannot be paid the moratorium can be terminated. 

Other permanent measures in the Bill include the suspension of ipso facto clauses in contracts for the supply of goods or services. So called ipso facto clauses are provisions in contracts which allow a contract to be terminated because the counterparty has entered an insolvency process. Whilst we do not believe this measure will apply to leases, where other land agreements are closer to service contracts, such as serviced office or membership agreements, this measure may be applicable.

The bill also amends the Companies Act 2006 to introduce a new restructuring scheme of arrangement.

Further analysis on the real estate implications of these measures will follow shortly.

You can access our recent webinar discussing the insolvency measures here.

A summary of the CIGB provisions on meetings and company filings is here.

Government has announced it is to publish code of practice with commercial sector to support high street business and provide clarity and reassurance over rent payments

The Government has announced it is working with leading businesses and trade associations to publish a code of practice to support high street businesses through COVID-19.

The press release issued today (29 May 2020) notes that "a working group has been established by the government with the commercial rental sector to develop a code which encourages fair and transparent discussions between landlords and tenants over rental payments during the coronavirus pandemic and guidance on rent arrear payments and treatment of sub-letter and suppliers".  The announcement states that this will enable collaboration and cooperation within the sector and help ensure no one part of the chain shoulders the full burden of payment.

The announcement states that the code will be temporary in nature and, significantly, that the government will explore options to make it mandatory if necessary. The Government notes that they are working to publish the Code prior to the next quarterly rent payment date.

Membership of the working group is set to include:

• British Chambers of Commerce
• British Property Federation
• British Retail Consortium
• Commercial Real Estate Finance Council
• Revo
• Royal Institution of Chartered Surveyors
• UKHospitality

The press release also highlights an announcement by UK Finance indicating its members support for commercial landlords.

Prospectus published for £1 billion building safety fund to remove unsafe non-ACM cladding systems from high rise buildings and building safety guidance amended

On 26 May 2020 the government published the prospectus for the new Building Safety Fund to meet the cost for remediation of unsafe non-ACM cladding systems on residential buildings in the private and social sector that are 18 metres and over and do not comply with building regulations.  This is in addition to the funding already in place for the replacement of ACM cladding systems.

The prospectus notes that the fund will meet the cost of remediating non-ACM cladding systems where building owners (or other entities legally responsible for making buildings safe) are unable to do so. The prospectus sets out the buildings and non-ACM cladding systems that are eligible for funding. It also states that applications can be made by both the private and social sectors and in both sectors funding for mixed use residential and commercial developments will be accepted. The registration process for the Fund will open in the first week of June 2020 and will remain open until 31 July 2020.  Full guidance and an application process for buildings which meet the technical criteria will be available by the end of July 2020.

The Government has also amended the building safety guidance to extend the provision of sprinklers in blocks of high-rise residential buildings to those buildings with a top floor height of 11 metres above ground level and added new guidance on consistent wayfinding signage for Fire and Rescue Service personnel in the same buildings. The amendments come into force on 26 November 2020.

Responsible contractual behaviour and litigation

The UK government has published "Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the COVID-19 emergency".

This is non-statutory guidance applying only in England and not in the devolved administrations. It is also stated not to apply to financial market transactions.

The aim of this unusual document is clearly laudable:

*"the government is strongly encouraging all individuals, businesses (including funders) and public authorities to act responsibly and fairly in the national interest in performing and enforcing their contracts, to support the response to Covid-19 and to protect jobs and the economy"*

The guidance is broad and necessarily vague about what the desired fair and reasonable behaviour in relation to contracts will involve. It does, however, set out a (lengthy) list of circumstances in which such a standard of behaviour is expected, including:

• requesting and allowing extensions of time;
• returning deposits or part payments;
• claims for damages, including liquidated damages;
• enforcing security and repossession of goods;
• making and responding to force majeure and frustration claims; and
• commencing and continuing formal dispute resolution procedures, including court proceedings.

It is also worth noting that certain measures such as the moratorium on forfeiture of commercial leases for non-payment of rent in the Coronavirus Act 2020 have already been specifically legislated for.

We take a more detailed look at this guidance and its impact here. 

In addition to the above the Construction Leadership Council (CLC) has also issued guidance encouraging parties to act fairly and reasonably when administering contracts and agreeing variations, given the universal impact of COVID-19. The CLC gives practical guidance and provides pro forma documents to assist the parties' discussions.  You can find further detail on this and links to our other recent construction related commentary and webinars here.