Commercial Property Update January 2020

Introduction

In this addition we focus on:

• The Commercial Rent Arrears Recovery (“CRAR”) procedure and its effect on a landlord’s ability to forfeit a lease;

• Company Voluntary Agreements (“CVA”) and lease surrenders;

• Easements – what constitutes “actionable interference”.

Commercial Rent Arrears Recovery and its effect on the Landlord’s other Lease Remedies

In the case of Brar and Brar -v- Thirunavuwkrasu the Court of Appeal confirmed that the use of the Commercial Rent Arrears Recovery (CRAR) procedure operates to waive any subsisting right on the part of a Landlord to forfeit a lease.

Background 

The Tenant had fallen into arrears with rent. The Landlord sought recovery of such arrears and instructed enforcement agents using the Commercial Rent Arrears Recovery procedure. The Landlord then exercised the relevant procedure over the Tenant’s goods at the premises (for unpaid rent and costs totalling £10,530.00). Three days after the exercise of the CRAR procedure, an electronic payment of the arrears was made by the tenant, however further arrears of £3,000.00 were still outstanding (due to an earlier dishonoured cheque). 

A week later the Landlord entered the property (by way of forfeiture) on account of the outstanding rent. The Tenant argued that such entry was unlawful and that by invoking the CRAR procedure, the Landlord had waived any right it had to seek forfeiture of the Tenant’s lease for the unpaid rent.  The lower courts agreed as did the Court of Appeal. 

The Court of Appeal held that waiver of forfeiture (a common law principle) had not been altered by the introduction of the CRAR statutory scheme for distraining rent. A use by the Landlord of the CRAR procedure amounted to an unequivocal act by the confirming an election to continue with the Tenant’s lease once the procedure had been used. As a consequence, the Landlord was subsequently prohibited from seeking to forfeit the lease for the outstanding rent due.

Commercial Rent Arrears Recover (CRAR)

The system of Commercial Rent Arrears Receiver (CRAR) came into force on April 6th 2014). The provisions replaced the common law self-help remedy of distress for arrears of rent and replaced it with a codified CRAR procedure which allows landlords of commercial premises to instruct enforcement agents to collect arrears of rent under a lease in a more standardised way. 

Under the old law of distress (recovery of rent), it was an established principle that a relationship of landlord and tenant had to exist when the rent accrued due and when the action for distress was levied by the landlord. Therefore the levy of distress against a tenant was an acknowledgement by the landlord that the lease was still continuing and was therefore contrary to any assertion that the landlord was able to forfeit the lease. This decision reaffirms that the same approach applies under the CRAR procedure.

It should also be noted that the CRAR procedure ceases to be available once the lease has ended. However, for rent accruing (and due before the end of the lease), the CRAR procedure can be utilised for up to six months after the end of the lease, but only where the lease did not end by forfeiture and the tenant has remained in possession of the property. 

Tenant’s Insolvency – Company Voluntary Arrangements (CVA) and Lease Surrenders

The recent case of “in the matter of Instant Cash Loans Limited” affirms the position that a scheme of arrangement between a company and its creditors should not include provisions for the surrender of the tenant’s lease.

In the above case, an application was made for approval of a scheme of arrangement between Instant Cash Loans Limited and its creditors. The company (a pay day loan company) was closing down and had ceased trading. It proposed a “scheme of arrangement” (under Part 26 of the Companies Act 2006). A “scheme of arrangement” is a statutory scheme between a company and its members or (as was the case here) its creditors that operates under the supervision of the Court. 

The arrangement needs to be approved by the requisite majority and sanctioned by the Court and, if these hurdles are overcome, the scheme is then binding and all affected members, creditors and the company. 

A “scheme of arrangement” requires a majority (both in number and representing 75% in value) of creditors or shareholders present and voting in person or by proxy at a meeting convened by the sanction of the Court. If a sufficient majority is in favour, the Court decides whether to sanction the scheme. It should be noted that a scheme of arrangement is not a Company Voluntary Arrangement (“CVA”)  however, in this case it was accepted that there was no material distinction between a CVA and schemes of arrangement as far as the issues in this case were concerned. 

Part of the scheme dealt with lease liabilities and future rent. In an earlier hearing seeking an order to convene two meetings of the company’s creditors to consider a proposed scheme of arrangement, the Judge had expressed concerns about whether a proposed term of the scheme was within the appropriate jurisdiction regarding schemes of arrangement (under Part 26 of the Companies Act 2006), due to the fact that it purported to end all of the company’s rights, obligations and liabilities pursuant to the various leases that it held and to surrender such leases to the company’s landlord.

A Judge based his decision on the Court of Appeal ruling in the earlier case of  Lehman Brothers International Europe ,where Lord Justice Patton had held that:

“A scheme of arrangement between a company and its creditors must mean an arrangement which deals with their rights inter se as debtor and creditor”. 

Whilst the Judge in the Lehman Brothers case acknowledged that a scheme was capable of affecting the proprietary rights, the extent to which it could do so were, in the view of the trial Judge, significantly circumscribed. The Judge also acknowledged that the recent decision in Discovery (Northampton) Limited and Others -v- Debenhams Retail Limited and Others had held that a landlord’s right to forfeit could not be varied by a CVA. 

In this case, the trial Judge concluded that the provisions of the scheme of arrangement relating to the surrender of the tenant’s leases were outside of the jurisdictional scope of the relevant section of the Companies Act 2006 and should therefore be removed from the arrangement.

The case is a useful reminder that both schemes of arrangement, and CVA’s purporting to vary the proprietary right of a landlord to forfeit a lease are outside the scope of any such arrangement and the lesson to be learnt is that both CVA’s and schemes of arrangement should not deal with forced lease termination provisions. 

These need to be dealt with separately by agreement alongside, but not within the terms of any such arrangement.

Easements – When is Interreference Actionable?

The case of Singhson Limited and Others -v- Kanendran concerns the court’s dismissal of an application for a mandatory interim injunction and provides a useful reminder of principles relevant regarding the extent to which an easement must be interfered with for such interference to be actionable in the courts.

In this case, the Claimants had the benefit of easements granted by their lease (of shop premises). The easements related to land owned by the Defendant behind the shop premises. The rights included a right of way: “at all times and for all purposes as well as on foot as with horses, carts, carriages and other vehicles” and also: “the right to stand vehicles for the purposes of unloading and loading goods and merchandise”. 

The Claimant’s claimed that their rights were being obstructed by four storage containers located on land behind the shops. The sought a mandatory interim injunction from the court requiring the Defendant to immediately remove the containers. The evidence in support of the application was however patchy and the Claimant’s did not produce any Statements of Truth to support their application. In addition, it seemed that some of the containers may have been there for some time. The Judge considered that the balance of convenience lay in not granting an immediate interim injunction but in transferring the case to the County Court for further consideration. 

The case provides a useful reminder of the test for an actionable interference with an easement. It should be noted that not every interference with an easement is automatically actionable in the courts. For an obstruction of a right of way to be actionable, the obstruction has to be substantial. The issue of whether an obstruction is “substantial” differs depending upon each individual circumstance. 

The case cited B&Q Plc -v- Liverpool and Lancashire Properties Limited (2001).  In that case, the Court held that the test for actionable interference with an easement was not whether what the beneficiary of the easement is left with is reasonable, but whether an insistence on being able to continue to use the whole of what was originally contracted for is reasonable in the circumstances.