The Coronavirus Act and The Impact on Payment of Service Charges & Ground Rent
You will have seen the announcement that private and social renters will be protected from eviction for three months under legislation given the Royal Assent on 25th March 2020, The Coronavirus Act 2020, as well as the offer of mortgage repayment holidays for mortgage borrowers.
These measures mean that residential tenancies are protected from eviction as new claims for forfeiture for missed payments of rent cannot be brought until at least the 30th June. This date could still be extended further.
Currently the Act does not include forfeiture of a long lease but enforcement of any possession order is unlikely to be in the interests of justice and recent guidance has advised that the courts will be suspending all ongoing housing possession action until at least the 30th June 2020, and again this could be extended further.
The government guidance on the legislation is that those in a position to make their rental payments continue to do so, while providing a few months grace to those that are struggling. This is not a rental holiday and as mentioned above, technically does not extend to breaches of lease, for example, failure to pay service charge and insurance. Where the breach complained of is as a direct result of these challenging times (i.e. financial) the courts are likely to offer relief to the Leaseholder wherever possible.
You will no doubt be faced with leaseholders who are unable to pay their service charges or ground rents, asking to delay payments. Leaseholders may be experiencing severely reduced incomes and the government are therefore encouraging Landlords to have a sympathetic approach and to collaborate with tenants on devising flexible payment options, in place of the traditional quarterly rent. The government has offered protection to property owners in the form of a Mortgage Holiday and put in place a furlough scheme so workers who might otherwise have lost their jobs will be entitled to 80 % of their income which should reduce the financial impact of the crisis for many. SLC have a bespoke vulnerable leaseholder process to identify those financially negatively affected.
If you are a Property Manager, Service charge budgets and accounts and planned works should be reviewed to ensure that any temporary shortfalls can be accommodated, and payment plans can be offered to give tenants breathing space.
The precise terms of any deferment or reduction in costs will need to be decided between you and your clients but of course both discounts and payment holidays will mean lower income and therefore a reduction in services. Due to the directive on home working this is likely to be a time when you will have higher than average occupancy levels, so you will need to carefully decide which services to reduce or cut and how to communicate this to the residents. Fire safety and the supply of heat, light and water are likely to be considered priorities.
As you will appreciate, the situation continues to change on a daily basis and we will provide further guidance as it becomes available from government.