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The Covid-19 Response – How it affects the timeframes to remedy defaults under a mortgage or commercial lease

Further restrictions on Landlord and Mortgagees’ rights have been announced and although those changes are still to be enacted it has been indicated they will apply retrospectively. In this article, Laura Fischer sets out the proposed changes to the Property Law Act 2007 which will extend the time periods for compliance with a default.

Know your lease – the importance of understanding (and negotiating) the terms of your commercial lease.

Changes to the Property Law Act for Landlords and Mortgagees

On 15 April 2020, the Government announced changes to the powers under the Property Law Act 2007 (PLA) in respect of Landlords’ rights to terminate commercial leases and the powers for Mortgagees to take possession or sell mortgaged land. These announced changes are yet to be implemented by legislation, however it is expected that a Bill will be introduced very shortly after Parliament resumes sitting and that legislation will be applied retrospectively.

Changes to the Termination of a Commercial lease

The current provisions of the PLA allow a Landlord to exercise their right to cancel a lease if:

  • the rent has been in arrears for at least ten working days;
  • a compliant notice of intention to cancel the lease is given which advises the lessee of the time they have remedy that default (being a minimum of ten working days); and
  • the default is not remedied within the specified timeframe.

The (minimum) ten working days that the rent must be in arrears and the time to remedy the default can run concurrently.

The announced change extends those timeframes from ten working days to 30 working days.  It is unclear whether the times frames will still run concurrently and it is expected that will be clarified when the amending legislation is passed.

These changes relate only to commercial leases, more information about the amendments to the termination of a residential tenancy as a result of COVID-19 can be found here.

Mortgagees’ Rights

The current provisions of the PLA allow a Mortgagee to exercise their powers to take possession or sell the land if:

  • the terms of the mortgage are breached (including the failure to pay the amounts due when they fall due);
  • a compliant notice is given; and
  • the default is not remedied within the specified timeframe.

The announced change extends the minimum time to remedy the default from 20 working days to 40 working days.  This change will apply to both residential and commercial property.  Although it is likely that the availability of mortgage holidays will limit the applicability of these announced changes to residential property.

Timeframes

The Government announcement indicates that the changes will apply to  notices given from 8 April 2020 (being 10 working days after Epidemic Preparedness (COVID-19) Notice 2020 was given on 25 March 2020).  Once legislation is passed, it is expected that Notices issued after 8 April 2020 will be treated as specifying the new timeframes to remedy the default.

It has also been announced that these changes will be in effect for six months after the Epidemic Preparedness (COVID-19) Notice 2020 comes to an end.  Accordingly, these announced changes are (at this stage) indicated to remain in effect until 25 December 2020.

Best practise

While these announced changes are not yet law and may change when legislation goes through Parliament, best practise for Landlords and Mortgagees will be to comply with these announced changes as any action taken could be deemed to be invalid and/or unlawful if Parliament passes legislation which gives effect to the broad terms set out in the announced changes.

If you need any advice on issuing notices under the PLA or if you are served with a notice, please contact Laura Fischer for advice.

 

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Laura Fischer - Harkness Henry Solicitor

Laura Fischer

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