As the marine licensing regime approaches its fifth anniversary, Andrew Oldland KC, Danica Cooper and Nicola Canty consider an eventful year in the field

In English waters and the offshore areas of Wales and Northern Ireland, the Marine Management Organisation (“MMO”) has, since April 2011, been the regulatory body responsible for issuing marine licences on behalf of the secretary of state for environment, food and rural affairs, under Part 4 of the Marine and Coastal Access Act 2009 (“MCAA”).

A marine licence is required for licensable activities taking place up to the mean spring high-tide water mark, including: the construction, alteration or improvement of any works in or over the sea, or on or under the seabed; and the removal of any substance or object from the seabed. This means most marine maintenance activities except those carried out by or on behalf of a harbour authority.

The complex process for obtaining the required consents for coastal developments was outlined in a previous article (Marine licences: worse things happen at sea, 12 April 2014, p66) but the past year has seen a significant policy change with the introduction of a recovery mechanism with effect from 1 October 2015.

When the secretary of state steps in

The secretary of state will make the final decision on whether the specified criteria to trigger the recovery of marine licensing determinations are met, and consequently whether that application should be determined by the secretary of state, rather than the MMO, with the Planning Inspectorate managing the inquiry process.

A formal representation from an affected local planning authority (“LPA”) or an inshore fisheries and conservation authority (“IFCA”) is usually required, in addition to the marine licence application itself relating to activity which: falls within band 3 of the Marine Licensing (Application Fees) Regulations 2014; is located in the inshore region; and is capable of having a significant effect. However, ministers may also decide to determine cases involving novel activities of national significance where there is no, or insufficient, planning policy guidance.

The Department for Environment, Food and Rural Affairs (“DEFRA”) intends that the recovery policy will be highly selective to avoid disproportionate uncertainty and delay, and will only be used for decisions “which genuinely merit going to inquiry”. The impact of the policy will be reviewed by DEFRA after 12 months, and it remains to be seen whether optimistic estimates for the costs of the change are realistic.

Harbour redevelopments

From 1 October 2013, changes to the Harbours Act 1964 (as amended by section 6 of the Marine Navigation Act 2013) have made it possible for statutory harbour authorities (“SHAs”) to apply for harbour closure orders to enable an SHA to be relieved of either all or certain specified statutory harbour functions without the need for legislation. Such applications follow a similar procedure to that of harbour revision orders, except that the process is managed by the Department of Transport (“DfT”) rather than the MMO.

Draft statutory guidance sets out the key criteria to be considered as part of the decision-making process and was consulted on by the DfT in autumn 2015; the finalised guidance is expected in 2016. The new regime will make it much easier to close harbours which are no longer commercially viable, but may give rise to potentially complex economic arguments on viability. It is expected that local authorities which manage numerous small and uneconomic harbours are likely to take advantage of these changes.

Coastal concordat and regional marine licences

Once closed, harbours may well be prime opportunities for property developers. The coastal concordat aims to streamline and co-ordinate the consenting process by providing a single point of entry for applicants, who are then guided to other regulators responsible for additional consents required. LPA engagement with the coastal concordat is improving but remains inconsistent, despite the MMO’s efforts over the past year to encourage more LPAs to sign up.

2015 also saw the emergence of regional licences for multisite applications. This is a further cost-effective option being encouraged by the MMO whereby applicants submit a single application for a 10-year licence that applies to multiple sites in an ecologically coherent area, where the activities applied for are generally lowimpact maintenance activities.

The intention is to reduce the administrative burden, time and cost of applying for numerous licences separately, while various advisory bodies also have the opportunity to address their concerns and suggest conditions to the proposed licence in an efficient manner.

Marine conservation zones

In January 2016, the UK government designated 23 marine conservation zones (“MCZs”) in the second tranche of designated sites in English inshore and English and Welsh offshore waters, resulting in a total of 50 protected sites. A third consultation on the final tranche of potential MCZ sites is expected in 2017, for designation in 2018.

In determining marine licence applications under section 126 of MCAA, the MMO is required to consider whether the activity is capable of affecting (other than insignificantly) the protected features of the MCZ or any ecological or geomorphological process on which the conservation of any protected feature of an MCZ is dependent. In order to meet this obligation, the MMO has introduced a MCZ assessment process into its decision making procedures.
The new sites are also relevant to coastal LPAs and IFCAs, all of which have a duty to exercise their functions to further – or, if that is not possible, at least hinder – the conservation objectives of a particular MCZ.

Trouble on the horizon?

Marine licensing is a fast-evolving area of planning. The MMO continues to work towards a more streamlined, transparent and effective marine licensing regime which would reduce both costs and uncertainty for applicants and increase fairness. However, the decision by DEFRA to claw back some of the more complex marine licensing decisions is undoubtedly a blow for an organisation which has struggled with a shortage of key personnel and an ever-burgeoning workload.

With the renewables market in the midst of what appears to be an ongoing run of bad news (closure of FITs, Capacity Market suspension, Targeted Charging Review…) the term “corporate PPAs” is often bandied about with trend-bucking optimism. Increasingly seen as a way to improve the viability of power projects financed without the support of Government subsidies, corporate PPAs – or, more specifically, corporate and industrial power purchasing agreements – are becoming increasingly common.

However, much of the commentary surrounding corporate PPAs is directed to those corporate and industrial (C&I) entities with very large-scale offtake requirements and well-resourced energy procurement teams; the Amazons and Googles of the world. This presumes a certain level of sophistication in energy management that medium-to-large C&I entities do not have, or frankly, need.

This article will take a step back to deal with the fundamental question of “What is a corporate PPA?” and explain how it can be distinguished from the forms of PPA with which many medium-to-large C&I entities will be more familiar: utility PPAs and private-wire agreements.

What is a corporate PPA?

A corporate PPA is any agreement made directly between a generator and a corporate or industrial (C&I) offtaker for the purchase of power.

As a category this captures a wide range of legal relationships relating to the purchase of power.  When used in the context of financing or developing an energy generation project, it usually refers to an agreement whereby a large corporate entity purchases power from a generator which is located at a site different to that of the corporate purchaser.  If a C&I entity purchases power from a generator which is located at the same site, that is usually referred to as a “private-wire” arrangement.

Why enter into a corporate PPA?

The reasons for entering into a corporate PPA vary. In some instances, price will be the motivating factor. But more often than not, a corporate PPA provides security of supply at a competitive price for a longer period than the spot market offers.  Also, when the source of electricity is renewable, it offers an opportunity for the entity (known as an offtaker of the power) the opportunity to demonstrate its environmental credentials. For the generator, where Government subsidies had previously provided a predictable long-term revenue stream, a corporate PPA gives that generator an element of known revenue.

What types of corporate PPAs are available?

The main differences in corporate PPAs arise in relation to the way in which the contract addresses the fact that the offtaker and the generator are located at different sites.  This means the generator is connected directly into the electricity distribution network and not to the offtaker (unlike a private-wire arrangement – see below). Broadly speaking, corporate PPAs address this in one of two ways:

1. “Sleeved” corporate PPA

A sleeved corporate PPA provides a way in which the parties can buy and sell the power produced by the generating asset where the generator and the offtaker are on the same network, but not in the same place. For this structure to be available, the generator and the user must both be connected to the distribution network.

Under this approach, the generator and the offtaker enter into a power purchasing agreement.  The offtaker agrees a price with the generator which relates to the power generated by the relevant asset. An electricity supplier/ utility is appointed as the intermediary between the generator and the offtaker. The corporate PPA will also deal with the entitlement to any renewable energy certificates (or other benefits).

The offtaker and the electricity supplier/ utility then enter into a separate back-to-back power purchasing agreement. This back-to-back PPA will often mirror the majority of the provisions from the original PPA so as to ensure there is no conflict or additional risk introduced by having a sleeved corporate PPA structure.

The generator sells its power to the offtaker who then sells it to the electricity supplier/ utility.  The electricity supplier/ utility manages the delivery of that power from the electricity distribution network to the offtaker and sells the power back at the final offtake point, charging the offtaker a sleeving fee.  The generator receives the agreed power price from the offtaker.

This type of corporate PPA is often used in the UK.

2.    “Synthetic” corporate PPA

A synthetic corporate PPA does not require the involvement of the energy supplier. It is a purely financial structure with no physical delivery of power. This means it provides more flexibility with its structure than a sleeved PPA, but usually means it is more complex.

Under this approach, the generator enters into a standard PPA with an electricity supplier/ utility at the spot price. In parallel, the generator and the offtaker enter into a separate synthetic corporate PPA incorporating a “strike price” at which the parties are looking to fix the cost of the power as between themselves. The synthetic corporate PPA then operates as a financial hedge (whether as a contract for difference or option) where, depending on the spot price at a given time, the generator or the offtaker will pay the other the difference between the spot price and the strike price.

A synthetic PPA is a financial derivative, where the parties agree that they will pay each other a balancing payment so each party should receive the agreed financial result.

What is the difference between a corporate PPA and a private-wire PPA?

In contrast to corporate PPAs, private-wire arrangements are more commonly entered into by medium-to-large (and even small) sized C&I entities. Private-wire, or “behind-the-meter”, arrangements are commonly used where those C&I entities are located on land adjoining energy generation assets.  The assets generate power which is delivered directly to the offtaker, and not via the electricity distribution network.

Power can be sold directly from generator to offtaker, often at a price well below the market rate.

Private-wire arrangements tend to be less complex than corporate PPAs.  This is because private-wire PPAs relate to power moving directly from the generator to the offtaker and therefore are unlikely to need complex price balancing arrangements (given there is no spot price interaction)

What are the common pitfalls in corporate PPAs and private-wire PPAs?

There are common pitfalls in agreeing the terms of power purchasing agreements that will apply regardless of whether you are dealing with a corporate PPA or a private-wire PPA. Contracted supply, outages, maintenance, metering arrangements and pricing all need to be considered closely to ensure both parties achieve the intended commercial outcome, balance risk appropriately and apportion liability. With any supply of electricity arrangements, it is essential to navigate the regulatory framework and care must be taken to ensure the arrangement is compliant.

What is the difference between a corporate PPA and a utility PPA?

A utility PPA, or power purchasing agreement with an energy supplier, differs both a private-wire and corporate PPA. A utility PPA is the most common form of PPA, whereby a generator enters into an agreement with an energy supplier/ utility for that energy supplier/ utility to purchase the power generated by that asset.  The contract will provide that the generator delivers the power to the electricity supplier/ utility where the generation project physically connects to the electricity distribution network (or for certain, larger generation projects, the national transmission network). These forms of PPA are in in standard form for most energy suppliers, and all but the largest generators find it difficult to obtain any movement on the terms of these PPAs from their energy supplier counterparties.

What opportunities are there for Corporate PPAs with medium-to-large C&Is?

For medium-to-large C&I entities which are looking for a way to improve their green credentials, and support renewable energy uptake in the UK, renewable energy-backed corporate PPAs may provide an interesting route for the future.

As it stands, offtakers are limited by the offering of energy suppliers.

However, the opportunities for corporate PPAs for medium-to-large C&I entities will depend on how the market addresses some of the key concerns of generators, funders and offtakers, including:

1. Counterparty covenant strength: naturally any person looking to fund a power generation asset will look at the ability of that asset to generate income.  The funder will need to be sure that the corporate offtaker has the financial wherewithal to satisfy its payment obligations to the generator for the full term of the corporate PPA.
2. Term: those corporate PPAs currently being agreed in the market to secure income for new-build generation assets tend to have a term of 10+ years. For any corporate entity this is a long period, and the directors will need to consider whether it is in the best interests of the offtaker to do so – taking a view on future of power prices over that period.

We expect in the longer term for there to be increasing opportunity for engagement by medium-to-large corporate and industrial businesses with the corporate PPA market, as renewable energy subsidies fall away and generators look for alternative revenue streams to secure funding. Whilst this may end up being a slow process, medium-to-large corporate and industrial businesses would be well advised to keep their eyes open to the opportunity that these contractual structures present for energy procurement.

The Michelmores Energy team has experience advising on a range of PPA structures and would be happy to discuss how corporate PPAs, private-wire arrangements or utility PPAs may work for your business.

As the Coronavirus pandemic continues to spread across the globe, businesses are being required to address the burning (and often existential) issue of what measures to take during the forthcoming period of uncertainty. In his announcement on 23 March 2020, the Prime Minister introduced stricter measures in an attempt to slow the spread of the virus including only travelling to and from work where “absolutely necessary”.^[1]

This announcement has left unanswered questions for those in the construction industry and the Government is now facing pressure to act to protect construction workers against the Coronavirus risk.^[2] This article examines the steps to consider in addressing both the health and economic challenges posed by COVID-19.

Health and safety

In an attempt to address the confusion surrounding the Coronavirus measures, the Cabinet Office Minister, Michael Gove, explained on 24 March 2020 that construction operatives could continue to work, so long as they practised “safe social distancing measures”.

It is difficult to reconcile this rather unusual suggestion with the practicalities of working on-site. Heavy tools and equipment, for example, need to be handled carefully to avoid injuries and remaining two metres apart simply increases the risks of working on building sites. Unless realistic measures are introduced, projects across the country are likely to reach a standstill to combat the virus. Indeed, two of the UK’s major house builders, Bellway plc and Persimmon plc, announced on 25 March 2020 that they would be shutting down their sites following the Coronavirus lockdown measures.

Practical suggestions

If businesses in the industry have not already done so, now would be a good opportunity to review, and perhaps update, their own health and safety policies. The health and safety of the workforce is of the utmost importance and COVID-19 is a complex virus which will take many months to overcome.

Whilst the CDM Regulations ensure compliance with health and safety procedures, businesses should be encouraged to ensure that appropriate procedures are put in place which will enable work on-site to continue if infection is reported locally. This is the case even if the industry shuts down and subsequently re-opens because the risk of infection remains particularly high given the large number of people working on building sites.

If the industry does shut down, businesses should consider appointing a designated group of individuals to monitor the development of the virus and ensure that they keep up-to-date with the Government’s advice and recommendations. In the coming months, this may help businesses plan a return to work.

The Common Law position – Frustration

Delays in practical completion, increases in the cost of a project and possible changes to the scope of works are just some of the possible impacts of Coronavirus. In circumstances where events outside the control of both parties result in the contract becoming “radically different” to what was originally contemplated, the only directly applicable doctrine in English Law upon which a contract may be discharged is Frustration.^[3]

An event which “frustrates” a contract results in it becoming commercially or physically impossible to perform. Historically, the doctrine has been narrowly defined when applied in construction disputes. The courts’ approach towards such arguments is that the parties are strictly liable for the performance of their contractual positions and there is a particularly high threshold to meet before a contract is considered to be frustrated. Parties are more likely to succeed in securing a remedy under a carefully drafted force majeure clause. (For more information on Frustration and force majeure in the context of Coronavirus, see also: Coronavirus and Property Development)

Contractual remedies: Force Majeure

Force majeure is a Civil Law concept and will only apply where expressly provided for in contracts. It refers to a “superior force” outside of the parties’ control that commonly allows a party to suspend (or terminate) the performance of its obligations because it is effectively prevented from fulfilling them. Both JCT Contracts and NEC Contracts deal with force majeure-type events differently.

JCT contracts: Relevant Events and termination

Important distinctions

A Relevant Event is an event which causes a delay to the completion date of a project. Readers should not confuse Relevant Events (which entitle the contractor to an extension of time) with Relevant Matters (which entitle the contractor to claim for loss and expenses). Force majeure is not a Relevant Matter and so no loss and expense is payable to the contractor.

Extension of Time

Clause 2.26.14 of JCT Design and Build 2016 Edition refers to force majeure as one of the Relevant Events entitling the contractor to a fair and reasonable extension of time for completion of the works (albeit no entitlement to additional payment). No further definition of what constitutes a force majeure event is however provided and there is room for debate as to whether the current situation falls within the ambit.

Termination

JCT contracts also provide suspension and termination rights. In particular, clause 8.11.1 of the JCT Design and Build contract allows either party to terminate the contractor’s employment under the building contract as a result of force majeure. The right of termination is not a unilateral right, however. Work must have been suspended for the relevant period stated in the Contract Particulars beforehand; the JCT default position being two months.

Following the period of suspension, the party wishing to terminate should serve notice on the other stating that, unless suspension ceases within seven days after receipt of that notice, he may terminate the contractor’s employment. If the suspension continues beyond seven days, a second notice should be served and termination of the contractor’s employment takes effect on receipt of this second notice.

Considerations

Parties should therefore exercise caution and adhere to notice requirements when asserting that a force majeure event has occurred. The burden of proof is on the party seeking to rely on the force majeure clause and any tribunal is likely to pay particular attention to a party’s exercise of termination rights and whether this is justifiable.

This is particularly relevant given the contractual obligations on contractors in connection with extensions of time. Clause 6.1 of the JCT Design and Build Contract, for example, requires a contractor to “constantly use his best endeavours to prevent delay in the progress of the Works or any Section […] and to prevent the completion of the Works or Section being delayed or further delayed beyond the relevant Completion Date”.

Other Relevant Events

As outlined above, the Government continues to face mounting pressure to protect workers in the construction industry. Depending on the Government’s response, clause 2.26.12 of the JCT Design and Build Contract may provide relief to contractors.

A Relevant Event under this clause is defined as the “exercise … by the UK Government or any Local or Public Authority of any statutory power that is not occasioned by a default of the Contractor … but which directly affects the execution of the Works“.

The wording is clear, however. The measures/restrictions must be implemented (which have a direct effect on carrying out construction works) before this clause can be relied upon. At the present time, contractors may struggle to rely on this clause if there is a shortage of staff on-site because the Government has advised that construction workers can continue their operations. If, however, the Government responds to the pressure by extending its work-from-home measures to the construction workforce, or orders the closure of all construction sites, contractors may succeed in arguing that a Relevant Event has occurred and may be able to claim for an extension of time (but not loss and expense).

A further example would include if the employer was taken ill after contracting Coronavirus and was unable to provide instructions to the contractor. A contractor may be able to argue that is an impediment and/or prevention by the employer amounting to a Relevant Event under clause 2.26.6 and also a Relevant Matter under clause 4.21.5 of the of JCT Design and Build contract. Under these circumstances, a successful contractor would be entitled to both an extension of time and loss and expense.

NEC Contracts: Compensation Events and Termination

Compensation Events

The concept of force majeure is not recognised under either the NEC 3 or NEC4 contract. Instead, “compensation events” operate to grant the contractor additional time and money. There are a number of compensation events which could be triggered as a result of Coronavirus, such as the failure of the employer or other contractors on site to carry out work within the accepted programme, resulting in a compensation event under clause 60.1(5).  Coronavirus is highly likely to result in clause 60.1(19), concerning unforeseeable events, being invoked. To qualify, the event must be one which prevents the contractor completing by the completion date shown in the accepted programme, or completing the works at all, and:

1. is an event which neither party could prevent;
2. is an event which an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it; and
3. is not one of the compensation events specified elsewhere in the contract.

Clause 60.1 is supplemented by clause 61.3 which provides that if the contractor does not notify a compensation event within 8 weeks of becoming aware of the event, he is not entitled to a change in the prices, the completion date or a key date. Furthermore, clause 15.1, requires contractors to give an early warning notice if they become aware of “any matter” which could affect the total of the prices, could delay completion or a key date, or impair the performance of the works in use.

The requirements of clause 61.3 and 15.1 should not be taken lightly by contractors as the first reported case of the virus in the UK was in February 2020. As we approach the end of March 2020, the difficulty of claiming that an early warning notice was given increases with the more time that passes.

It will, of course, be easier for contractors to rely upon clause 60.1(19) if they were engaged under NEC contracts before the outbreak of the virus. As with JCT contracts, however, COVID-19 as a compensation event is yet to be tested by the courts. This suite of contracts is based on the principle of mutual trust and cooperation and the courts may look to see if a party’s conduct in response to the virus is consistent with those doctrines.

Given the extent of the Government measures so far in response to the virus, and the risk of the industry shutting down, factor (a) is unlikely to be a point of contention, but factor (b) may cause problems. If a contractor, who is still negotiating their contract during the Coronavirus pandemic, wishes to rely on clause 60.1(19) for money or an extension of time because of the impacts of Coronavirus in the future, he would need to argue that, at the time of signing the contract, the likelihood of Coronavirus having an impact on the works was so low that it was not necessary to allow for it. The courts are unlikely to entertain such an argument given the scale of the pandemic so far.

Termination

Under NEC Contracts, it is only employers that may terminate the contract under clause 91.7 R21 where a force majeure-type event occurs. Again the event must stop the Contractor completing the works, or stop the Contractor completing by the date in the accepted programme and be forecast to delay completion by at least 13 weeks, and it must also meet the criteria set out in points (a) and (b) above which applied to clause 60.1(19).

However, under clause 91.6, where the project manager orders work to cease and no instruction is given to re-start work within 13 weeks then, if the reason for the instruction was employer default (R19) or “any other reason” (R20), then the contractor may terminate the contract. We submit that if such an instruction is issued due to the effects of Coronavirus then that would be capable of being “any other reason”.  Any extension of the lockdown to construction sites is, we think, likely to be held by the courts to be of suspensory effect, so this would not necessarily amount to a situation where “…the Parties have been released under the law from further performance of the whole of the contract (R17)”, whereupon either party may terminate the contract under clause 91.5.

Contractual Remedies: Bespoke clauses

For contracts that have not yet been entered into, parties may wish to consider including bespoke clauses or amendments to existing clauses that specifically account for the impacts and effects of Coronavirus. It is not recommended that parties carry out their own amendments to their contracts; rather, parties should discuss their concerns with their lawyers who can then tailor the drafting to the contract and nature of work on-site. Whilst the courts will do what they can to give effect to what the parties objectively agree, the major risk for parties without expert help in drafting relief clauses too widely (or too narrowly) is that it could lead to unexpected relief (or denial of anticipated relief).

Conclusion

As the country enters into a period of uncertainty, the Government is likely to release further information concerning the future of the construction industry in the short term.

In the meantime, parties should take heed of the advice above and review the terms of their contracts with lawyers and consider drafting in provisions to cover events such as this occurring in the future.

Now is also an opportunity to check the terms of any insurance documentation and/or make enquiries as to whether the impacts to business operations as result of Coronavirus are covered.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Michelmores’ Construction & Engineering team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Updated on 3 April 2020

Chaos wrought by the coronavirus has, in a matter of weeks, altered the social and commercial environment beyond recognition. Businesses are being forced to make existential decisions at short notice – without visibility on the duration or full extent of the disruption or the emergency assistance available – and with the country now in full lockdown. This short guide sets out certain steps and options for businesses seeking to weather the storm, based on information available at time of writing.

This article is aimed at solvent companies; where a company is insolvent, different considerations will apply. Our article on issues for directors trading through the coronavirus introduces some of those issues.

On 28 March, the Government confirmed that the wrongful trading regime for distressed and insolvent companies was to be temporarily relaxed (retrospectively from 1 March). While this will offer some comfort to directors faced with difficult decisions, directors’ duties and certain trading offences remain in place and we would recommend that directors continue to trade very cautiously during this period. This article, and our specific article on coronavirus and changes to the insolvency regime, reflect this position.

1          Review cashflow forecasts

In a lockdown scenario businesses must prioritise assessments of how far their cash in bank, without further revenue, will sustain them. Three weeks was the initial benchmark for the length of time that businesses would need to tread water, but this is in no way guaranteed. Forecasting should, at least in theory, look ahead to conditions once trading can resume, although the assumptions required to do so will be without precedent in modern history. Government assistance, discussed in greater detail below, will be a key mitigating factor and it is reasonable to assume that directors will be able to cite that support as a justification for reasoned operational decisions.

The wrongful trading regime (discussed in our article on directors’ duties and coronavirus), under which directors may attract personal liability for incurring liabilities where a company is or is likely to become insolvent, has been relaxed for three months from 1 March. However, directors still owe duties under the Companies Act 2006, including duties to act in the best interests of a company’s members (or its creditors where the company is insolvent), and Insolvency Act 1986 provisions, including fraudulent trading and transactions defrauding creditors, continue to apply. Further details are set out in our article on coronavirus and changes to the insolvency regime.

Regardless of the relaxation of the wrongful trading rules, directors should continue to trade very cautiously, and use such cashflow forecasting as is feasible to try to establish when a company is, or is likely to become, insolvent. Engaging financial advisors may assist with forecasting and contingency/post-lockdown recovery planning, as well as potentially providing directors with an additional layer of justification for decisions.

2          Cut costs

Employees the Government’s announcement on 21 March of its Coronavirus Job Retention Scheme, under which it will pay 80% of the wages of furloughed employees (capped at £2,500 per employee per month), was welcome news. In the context of total lockdown, taking advantage of this scheme will be essential. Our update on the Job Retention Scheme contains more detail.

How the scheme (currently set to run for three months) will work in the long term, and whether some businesses may still be forced to make redundancies or take other precipitous action, remains unclear. Under lockdown, even the 20% contribution by employers may prove unfeasible. Generally speaking, terminating an employee’s fixed term contract in response to coronavirus disruption will, if a full redundancy process is not followed, expose the employer to a claim for unfair dismissal. A proper redundancy procedure entails expense and takes time, and may not therefore be feasible where the end-point of the disruption remains unknown. If all else fails, mothballing the business, discussed below, may be an alternative.

Freezing or minimising orders from suppliers should be undertaken as appropriate. Dialogue with suppliers should be maintained and plans put in place for resumption at the end of the lockdown period.

Defer capital expenditure and investment. Spending on longer-term projects or improvements that will not generate cash in the short term will, generally, be inappropriate during lockdown and the period immediately following it. Recruitment, marketing, premises moves and technology overhauls may need to be postponed.

Suspending payments to creditors, including landlords and suppliers may, if those creditors are not essential suppliers or likely to take enforcement action, provide breathing room. Non-payment should be considered very carefully as, depending on a company’s circumstances, directors may be required to have regard to the interests of that company’s creditors. Non-payment may also constitute an event of default under the company’s banking documents. The Government has declared a three-month moratorium on commercial leasehold forfeiture (in respect of non-payment of rent only, so that service charge and other agreed leasehold costs remain payable), although this is a stopgap measure which does not authorise non-payment of rent nor rectify breaches of banking covenants.

Mothball the business. A draconian step, but one which may offer longer-term certainty. A company may enter a solvent liquidation, in which an insolvency practitioner takes control of the company, settles its liabilities from its available assets and returns the surplus to its shareholders. Solvent liquidation can, depending on the circumstances, allow business owners to extract surplus cash from a business, retain its intellectual property (including branding) and warehouse it until the period of turbulence ends, following which they re-animate it as a new company. How this affects the business commercially is a tricky call. It should be emphasised that a company that is insolvent cannot use this process, and specialist insolvency advice should be obtained in those circumstances.

3          Explore funding options

Government relief may be available. 12 months of rate relief, as well as grant funding, have been confirmed for retail, hospitality and leisure businesses, and Time to Pay arrangements with HMRC are reportedly being agreed summarily, subject to monitoring requirements. The Coronavirus Job Retention Scheme is discussed above.

The Coronavirus Business Interruption Loan Scheme, which is available from week commencing 23 March to small and medium-sized enterprises (SMEs), commits the Government to guaranteeing 80% of a loan (up to a maximum loan amount of £5m) to a qualifying business, subject to certain restrictions. The Government will meet interest payments on the loan for the first 12 months. Companies with annual turnover above £45m will be ineligible. In an announcement on 2 April, the Government confirmed that participating lenders cannot first recommend non-CBILS loans to applicant companies, nor demand security or personal guarantees for CBILS loans of under £250,000.

The Covid Corporate Financing Facility for large businesses is also available as of 23 March. The scheme will run for an initial period of 12 months and involve the Government purchasing newly-issued commercial paper issued to  ‘firms that can demonstrate that they were in sound financial health prior to the impact of Coronavirus‘ and that ‘make a material contribution to the UK economy‘. The minimum issue size is £1m. There are concerns that a large number of businesses fall between the cracks in the criteria for this scheme and those for the Coronavirus Business Interruption Loan Scheme – failing to meeting the ‘material contribution’ aspect of the former and the turnover limit of the latter.

Drawing down on existing facilities, obtaining new credit or negotiating forbearance with lenders can provide breathing room while other mitigation is undertaken. Dialogue with lenders should be maintained throughout.

Insurance policies should be reviewed to establish whether pandemics (and, following the commencement of lockdown, mandatory closure of business venues) are covered. Cover is, generally, unlikely to be available, as business interruption provisions usually require quantifiable physical damage to property as the basis of a claim. Policies may, however, contain relevant extensions or specific disease-related wording. Our article on insurance cover in the context of coronavirus contains a more detailed account.

The Financial Conduct Authority (FCA) has written to listed companies requesting that they observe a moratorium on publication of their preliminary financial statements until Sunday 5 April. The moratorium, which is voluntary, applies only to full-list PLCs and does not relate to trading updates issued by RNS. In the meantime, PLCs should be able to provide sufficient information to the market in the form of RNS updates without publication of financial statements; where a PLC has concerns about the impact of delaying publication, it is understood that the FCA has, to date, been responsive in fielding questions. Private companies may apply online to Companies House for a three-month extension to the deadline for filing accounts.

4          Diversification

Certain industries, including food, media, healthcare commodities and delivery services are trading well, at least in the short term, in the coronavirus chaos. While some businesses are more adaptable to an environment of mass reclusion than others, there may be opportunities to adjust business models in novel ways to fit the altered market, helping companies to ride out the crisis.

Migrating online. As society has retreated indoors and communicates almost solely through the internet, businesses formerly reliant on physical presence should consider whether their offering can be adapted to a primarily virtual format. Multi-platforming, or coordinating bricks and mortar supply with online trade, has been a high street imperative for some time, and that process seems now to have been, at least temporarily, brought forward by several generations. Entering online marketplaces and using new or existing infrastructure to fulfil contracts may allow some businesses to continue in an altered form.

Alternative delivery methods for existing services may become available; the relaxation of planning laws for pubs, allowing them to serve meals and non-alcoholic drinks as takeaways, may add a new dimension to the prepared food market at a time in which the food supply landscape has changed dramatically. Other relaxations of laws and regulations, or changes in consumer habits, may arise in due course.

Repurposing production to in-demand goods can turn a crisis into an opportunity. Brew Dog and Louis Vuitton parent company LMVH have moved in to hand sanitiser production, and private manufacturers are dedicating factory resources to medical ventilator production. Businesses with transferable plant, access to raw materials and versatile staff may be able to temporarily metamorphose in this way.

If you require legal advice on coronavirus disruption planning, please contact a member of our specialist teams.

For corporate and commercial advice, please contact David Thompson or Richard Cobb.

For employment advice, please contact James Baker.

For insolvency advice, please contact Sacha Pickering or Karen Williams.

If you would like to download a PDF version of this article please click here.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Commercial property insurance policies typically require business premises to be occupied for the coverage to be effective, or for policyholders to notify the insurer if the property is going to be unoccupied for a period of time. Many policies also contain warranties pertaining to the security of the premises insured, for example the presence of security staff.

Following the recent, Government-mandated closure of certain businesses, and the continued Government guidance that all workers should, if possible, work from home, a significant number of food & drink, retail, leisure and other commercial premises, as well as office buildings, will now be unoccupied.

The Association of British Insurers (ABI) has provided guidance to policyholders in relation to unoccupied premises stating that:

• “If a business has to temporarily close because of Covid-19, where customers are taking the appropriate steps to mitigate the risk of damage to the property whilst unoccupied, insurers will be flexible around the period of un-occupancy specified on the policy document.
• Policies will often include conditions that are intended to ensure good practice in protecting buildings of damage caused by the risk of fire, theft and escape of water, which are often increased when a building is empty.  It is important that business owners continue to follow risk management advice and ensure they understand what steps they need to take.
• Some insurers have also waived requirements for their business customers to immediately notify them of their unoccupied status, (depending on the individual business circumstances).  This should help those customers concentrate on managing their businesses and allow insurers’ call centres to focus on managing the significant number of insurance claims being processed.
• If there are any specific requirements as part of your insurance contract that you are unable or unlikely to be able to comply with, such as on-site security, speak to your insurer or insurance advisor/broker.”

Whilst the guidance provided is helpful, it appears that the approach being adopted varies between different insurers with some stating that they will not enforce provisions relating to unoccupied premises at all, and others merely agreeing to relax/extend the provisions. For example, Zurich has said that “where buildings are temporarily closed due to the COVID-19 outbreak, our Unoccupied Conditions will not apply and we will not be taking any further measures to restrict coverage.” By contrast, Allianz has provided the following advice for commercial landlords:

“We usually ask that you notify us if the premises are going to be unoccupied for more than 30 consecutive days for Allianz Commercial standard policy wordings, or 45 days for SME wordings.  We’re now extending this period to 60 days, so you only need to let us know at the end of the 60 day period if the premises will still be unoccupied. During that 60 day period your customer’s existing cover will remain in place.”

What should you do?:

1. Check your policy to see what conditions apply.
2. Contact your broker/insurer to understand their position on the enforcement/applicability of unoccupied premises conditions during the current period.
3. Ensure that insofar as possible you are complying with any warranties/conditions pertaining to risks which are increased where buildings are unoccupied (e.g. fire, theft, flood). Zurich, for example, has stated that where its customers are “making appropriate provisions to mitigate their unoccupied risk as a result of Coronavirus, the temporary closure of your building should not prejudice any claim made” thereby leaving the door open for the insurer to argue that adequate mitigation measures were not taken by the policyholder to prevent a claim.
4. Where you cannot comply with certain provisions, such as the requirement for security staff, seek specific confirmation from your insurer that this will not prejudice your cover.
5. Continue to keep the situation under review as Government guidance changes; insurers may take a different approach to businesses who are required to be closed (e.g. restaurants) compared to businesses who have chosen to close due to the Government guidance (e.g. offices).

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Insurance team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Last week Steve Quartermain issued his final letter as Chief Planner. It would usually have contained some reflections on his time in Central Government, but it was largely taken up with his thoughts on Coronavirus (COVID-19).

The letter was positive and informative, showing real concern to ensure that emergency changes to the planning system gain as wide an audience as possible. I will run through some of the changes and Steve Quartermain’s thoughts, in his own words – but first to quote directly from the final part of his letter:

“Planning is a wonderful profession and we have great people doing a great job. Be practical, be pragmatic and let’s plan for the recovery.”

Steve Quartermain, the nation’s senior planner, is clearly proud of the planning profession and his thoughts and comments make it clear that he considers that the planners will lead the recovery.

PLANNING UPDATE – 30 March 2020

Decision Making

Some councils are concerned about the implications of Coronavirus for their capacity to process planning applications within statutory timescales. It is important to prioritise decision making to ensure the planning system continues to function, especially where this will support the local economy.

Use all options to continue your service and explore every opportunity to use technology to ensure that discussions and consultations can go ahead.

Consider delegating committee decisions where appropriate. The Government has confirmed that it will introduce legislation to allow council committee meetings to be held virtually for a temporary period, which we expect will allow planning committees to continue.

Be pragmatic and continue, as much as possible, to work proactively with applicants and others, where necessary agreeing extended periods for making decisions.

There may be circumstances where a local planning authority is unable to consider a permitted development prior approval application within the deemed consent period. It remains important to prioritise these so that important economic activity can continue.

Enforcement

A Written Ministerial Statement was published on Friday 13 March which urges local planning authorities to apply pragmatism to the enforcement of restrictions on food and other essential deliveries at this time.

Local planning authorities should also use their discretion on the enforcement of other planning conditions which hinder the effective response to Coronavirus (COVID-19).

Planning Inspectorate guidance

The Planning Inspectorate (PINS) has published guidance on how it will continue to carry out its duties under the Town and Country Planning Act 1990, the Planning and Compulsory Purchase Act 2004 and the Planning Act 2008. While some site visits, hearings, inquiries and events will have to be cancelled or postponed, PINS is considering alternative arrangements where possible.

PINS will keep its guidance under review, which could change at short notice to reflect the Government’s wider advice. It is sensible to check the PINS website regularly for updates.

Ministry of Housing, Communities and Local Government Planning (MHCLG) casework

The Planning Casework Unit (PCU) at MHCLG will be continuing to deal with its regular range of cases. However, PCU will not be able to receive or process hard copy correspondence.

All correspondence for the PCU should be sent electronically to:

• PCC@communities.gov.uk for recovered appeals and applications which have been called in by the Secretary of State.
• PCU@communities.gov.uk for all other case types.

Local planning authorities should help to publicise this.

Permitted Development Rights

The Government has made clear that all pubs, restaurants and cafes should no longer be open for on-site consumption, but can remain open to provide a takeaway service for hot food – a permitted development right (PDR) which came into force at 10am on Tuesday 24 March for a 12-month period.

To support pubs and restaurants and ensure access to food during the emergency period, this new national PDR will enable pubs, restaurants and cafes to operate temporarily as hot food takeaways (A5 use class). To give greater flexibility, the PDR will also seek to cover cold and pre-prepared food for takeaway and delivery. The pub, restaurant or café will remain in its current use class during this period.

Conclusion

The letter goes on to add details for plan-making, neighbourhood planning referendums, neighbourhood planning, and new burdens funding. But the most useful revisions are, I hope you agree, set out above.

Steve Quartermain is firm in his belief in the planning system and those who work in it.  There is a renaissance coming once the Coronavirus dam breaks. The pent-up demand and desire will result in great design, statement buildings and targeted local delivery.

And it will be planners in the vanguard.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Mark Howard, Partner and Head of Michelmores’ Planning team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

BREAKING NEWS for employers 27 March 2020

On 26 March, the Government issued further details in respect of the Coronavirus Job Retention Scheme (‘the Scheme’). At the moment, we are waiting to see whether this guidance will be the only basis of HMRC’s implementation of the Scheme, or whether legislation will be enacted in addition to this.

When is the Scheme going to be operational?

The Government expects the Scheme to be up and running by the end of April.

What are the eligibility criteria for employers who wish to make a claim?

Any UK organisation with employees can apply, including:

• Businesses
• Charities
• Recruitment agencies (where agency workers are paid through PAYE)
• Public authorities.

To qualify, the organisation must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.

Where a business is being taken under the management of an administrator, the administrator will be able to access the Scheme.

Which employees are eligible for the Scheme?

The rumours were true – although many lawyers and barristers found no evidence of the ’28 February 2020′ rule, and it was presumed to be ‘fake news’, the Government has confirmed that, in order to be eligible for furloughing, an employee must have been on an organisation’s PAYE payroll on 28 February 2020. Employees hired after 28 February 2020 cannot be furloughed in accordance with the Scheme.

The guidance confirms that furloughed employees can be subject to any type of contract, including:

• Full-time contract
• Part-time contract
• Agency contract
• Flexible / zero-hours contract.

The Scheme also covers employees who were made redundant since 28 February 2020, if they are re-hired by their employer.

Is there a minimum period of time for which employees can be furloughed?

Yes. Employees must be furloughed for a minimum of three weeks.

Does the Scheme cover employees who have already been made redundant as a result of Coronavirus (COVID-19)?

Yes, it can. The Scheme covers employees who were made redundant since 28 February 2020, IF they are re-hired by their employer.

Do we have clarity on the application of the £2,500 monthly wages cap and the calculation of wage costs?

Employers will be able to claim for 80% of furloughed employees’ usual monthly wage costs, up to a cap of £2,500 a month, plus the associated Employer National Insurance contribution and minimum automatic enrolment employer pension contributions on that wage.

For full-time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February 2020, should be used to calculate the 80%. The Government has stated that commission and bonuses should not be included, which is rather surprising, and further guidance on this would be useful.

For employees whose pay varies, the following applies:

• If an employee has been employed for a full 12 months prior to the claim, the employer can claim for the higher of either the same month’s earnings from the previous year, or the average monthly earnings from the 2019-20 tax year.
• If an employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
• If an employee only started work in February 2020, a pro-rated calculation of their earnings to date should be used.

The Government has indicated that it will issue more guidance on how employers should calculate their claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions, before the Scheme becomes live.

Do the usual income tax and other deductions apply to the 80% wage?

Yes. Whilst on furlough, an employee’s wage will be subject to the usual income tax and other deductions.

Does the optional 20% ‘top-up’ from employers still apply?

Yes. Employers can choose to provide top-up salary in addition to the monies provided through the Scheme. However, it is important to note that Employer National Insurance Contributions and automatic enrolment contribution on any additional top-up salary will not be funded through this Scheme, neither will any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3%.

Is the 80% rule subject to the National Living Wage / National Minimum Wage?

Individuals are only entitled to the National Living Wage / National Minimum Wage (NLW / NMW) for the hours they are working.

As a result, furloughed workers, who are not working, must be paid 80% of their salary, subject to the £2,500 cap, even if, based on their usual working hours, this would be below NLW / NMW.

Can an employee continue to work for the organisation whilst on furlough?

No. In order to be eligible for the Scheme, an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue.

However, a furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for the employer.

If employees are required to e.g. complete online training courses whilst they are furloughed, then they must be paid at least the National Living Wage / National Minimum Wage for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

Will the Scheme apply to those employees who have been put on reduced hours?

No. Employees on reduced hours / short-time working will not be eligible for the Scheme.

How do employers communicate a decision to furlough to their employees?

Employers should write to the relevant employees, confirming that they have been furloughed, and keep a record of this communication. When employers are making decisions in relation to the process, including deciding who to select for furlough, equality and discrimination laws will apply in the usual way.

We have had a number of enquiries regarding selection of employees for furloughing. Rather like redundancy selection, we would advise you to base it on objective criteria where possible. Otherwise, in a situation where an employee moves from furlough to redundancy, they might question their selection for furlough, which has, in turn, made them more vulnerable to redundancy. As always, we would advise that you are alive to risks in respect of those who have protected characteristics, such as disability, sex or age.

Can employees on unpaid leave be put on the Scheme?

Yes, as long as they were placed on unpaid leave after 28 February 2020.

Can employees on Statutory Sick Pay be furloughed?

Employees who are on sick leave, or self-isolating, should continue to be paid Statutory Sick Pay until they cease to do this, at which point they can be furloughed.

Importantly, employees who are shielding in line with public health guidance can be placed on furlough.

What if an employee has more than one job?

If an employee has more than one employer, then they can be furloughed for each job. The £2,500 cap applies to each employer individually.

What happens if an employee is on maternity leave?

The Statutory Maternity Pay provisions will continue to apply as normal.

However, the guidance has indicated that, if an employer offers enhanced, earnings related, contractual pay to women on maternity leave, this is included as a ‘wage cost’ which can be claimed through the Scheme. This guidance is rather unclear, as it suggests that women on maternity leave can be furloughed, but there is no express confirmation of this, or how the mechanics would work in practice.

Public sector organisations

It is expected that the Scheme will not be used by many public sector organisations, given that the majority of their employees will continue to provide essential public services during the Coronavirus outbreak.

Where organisations receive public funding for staff costs, and that funding is continuing through the crisis, the Government expects employers to use that money to continue to pay staff and not furlough them. Importantly, this also applies to non-public sector employers who receive public funding for staff.

Finally, organisations which are receiving public funding specifically to provide services in response to Coronavirus (COVID-19) are not expected to utilise the Scheme.

How can I claim under the Scheme?

To claim, employers will need:

• ePAYE reference number.
• The number of employees being furloughed.
• The claim period (start and end date).
• Amount claimed (per minimum length of 3 week furloughing).
• Bank account number and sort code.
• Contact name and phone number.

Employers will need to calculate the claimed amount themselves. HMRC is retaining the right to retrospectively audit submitted claims.

Employers will only be able to submit one claim every three weeks (in line with the minimum period of furlough leave). Claims can be backdated to 1 March 2020, if applicable.

Once HMRC has received the claim, and confirmed eligibility for the grant, it will pay the monies via BACS payment into a UK bank account.

OTHER UPDATES

Coronavirus Act receives Royal Assent

On 25 March 2020, the Coronavirus Act 2020 received Royal Assent.

In essence, it consolidates many of the measures which have already been announced by the Government in response to the virus but, until this point, were not strictly law.

The Act includes the following provisions:

• Modification of the Statutory Sick Pay (‘SSP’) regime, so that SSP is payable from the first day of sickness or self-isolation, and can be funded by HMRC; and
• Creation of ’emergency volunteering leave’, which will enable individuals to take time off work to volunteer in health or social care, and receive compensation for loss of earnings (more about this, below).

The majority of the Act is now in force, but the SSP rule changes and the emergency volunteering leave provisions both require secondary legislation. In essence, the Coronavirus Act gives Ministers the power to make appropriate regulations. As a result, although the above provisions are technically in force, nothing will change until the secondary legislation is made.

The Act provides that ‘temporary’ provisions, such as those relating to SSP and the right to emergency volunteering leave, will automatically expire after two years. Important to note, however, is that the protection from detriment and dismissal for having taken emergency volunteering leave, as well as the protection of employees’ terms and conditions of employment, will not automatically expire.

Emergency Volunteering Leave

This has been introduced to allow workers to temporary leave their normal job and volunteer for the NHS or social care sector. The scheme has had an unprecedented response, with over 400,000 individuals signing up in the first 24 hours since the announcement.

An ‘appropriate authority’; for example, a local authority, an NHS Commissioning Board or the Secretary of State for Health and Social Care, can certify an individual to act as an emergency volunteer. Subsequent to this, the individual will be able to take the leave if they provide their employer with three working days’ notice, and the certificate.

Individuals can take one period of leave during the ‘volunteering period’, which is one 16 week period beginning on the day that the relevant provisions in the Act are brought into force. The period of the individual’s leave must be either two, three or four weeks’ long. There is no provision for employers to refuse leave.

There is no obligation, during such a period of volunteering leave, for you as an employer to pay wages. However, an employee on emergency volunteering leave will be entitled to the following:

• The benefit of all the terms and conditions of employment (except remuneration) which would have applied had the employee not been absent.
• A right to return from leave to the job in which he or she was employed before the absence, on no less favourable terms and conditions.
• Protection from detriment / dismissal, in that it will be unlawful to subject an individual to a detriment for having taken (or sought to take) emergency volunteering leave, and it will be automatically unfair to dismiss an employee for the same reason.

The Act requires the Secretary of State to establish arrangements for paying compensation to volunteers in respect of loss of earnings, as well as travel and subsistence expenses. Whether this will be subject to a cap is not currently clear.

Employees will not be able to apply for the scheme where they are:

• Employed by a business which has fewer than 10 members of staff
• A civil servant
• Working in legislature or
• A police officer

Updated Instructions on Business Closures

The Government has updated its instructions regarding business closures. As a result, we have amended our guidance, which was initially issued on 24 March 2020. The updated version can be found on our website by clicking here.

Changes include confirmation that planning regulations now allow restaurants, cafes and pubs to offer hot food takeaway, and there is further helpful guidance on the treatment of tradespeople who carry out work in people’s homes.

New Government Package for Self-Employed Individuals

The Chancellor has announced headline details of a new rescue package for the self-employed, as follows:

• An income support scheme will pay self-employed individuals a taxable grant worth 80% of average monthly income, capped at £2500 per month.
• This will be calculated by taking the average of income over the last three years.
• Self-employed individuals claim the grant whilst continuing to do business (the opposite of furlough leave).
• The scheme is open to anyone with trading profits of up to £50,000. This covers 95% of self-employed individuals.
• To qualify, self-employment must be an individual’s ‘main job’, in that they must make most of their income from it.
• Individuals must have submitted a tax return for 2019, or do so within four weeks from 26 March 2020.

The scheme will be open for at least 3 months, but is unlikely to be operational before the end of June. Therefore, unfortunately, it will not provide immediate help to those self-employed individuals who are struggling with cash flow.

Acas publishes new guidance on working from home

In response to the large shift in the number of employees working from home, in order to limit the spread of Coronavirus, Acas (Advisory, Conciliation and Arbitration Service) has published new guidance for employers. It covers issues such as health and safety, mental and physical health, equipment and technology and childcare issues.

The guidance can be found by clicking here.

Suspension of Gender Pay Gap reporting

In the light of the recent crisis, the Government Equalities Office and the Equality and Human Rights Commission have suspended the reporting deadlines for the 2019-20 reporting year.

Prior to this announcement, Gender Pay Gap reports would otherwise have been due from public sector bodies by 30 March, and from large private sector employers by 4 April 2020.

The Government announcement can be found by clicking here.

[Content correct as at 27 March 2020]

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Rachael Lloyd, James Baker or Andrew Tobey in Michelmores’ Employment team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Coronavirus has recently been declared as a pandemic by the World Health Organisation (WHO). The status acknowledges the widespread prevalence and impact of coronavirus across the globe. Furthermore, the government has announced that up to a fifth of the UK workforce could be off sick at its peak. Therefore, it is vital that you take steps to reduce the risk and impact on your organisation.

Job Retention Scheme

On 20 March 2020, the government announced the implementation of the Coronavirus Job Retention Scheme (‘the Scheme’), to try and help businesses and employees alike through these unprecedented times. The aim of the Scheme is to protect jobs and try to avoid redundancies.

For further detail on the Job Retention Scheme please click here.

Obligations on employers

It is important that you take a robust approach, in order to:

• protect employees and customers or clients as much as possible, by preventing the spread of infection, particularly to vulnerable people; and
• allow your business to continue to function, support your clients or customers, and minimise disruption.

In determining a response to the coronavirus, it is important that you have regard to your various duties, including the duty to take reasonable care of the health and safety of your workers, and other responsibilities under legislation such as the Equality Act 2010.

Business continuity and ‘flattening the curve’: practical steps

Practically, there are number of sensible strategies you should consider adopting, as follows:

• keeping up to date on government guidance and communicating this to employees;
• ensuring emergency contact details of employees are up to date;
• reminding employees to notify HR if they have been to a Category 1 or Category 2 area (as defined by Public Health England), have been in contact with a person who has been to a high risk area or has symptoms of coronavirus, and self-isolate according to government guidelines in force at the time;
• reinforcing government advice regarding self-isolation when displaying symptoms consistent with coronavirus;
• updating policies and procedures in relation to flexible working, homeworking and sickness absence;
• ensuring employees can work effectively from home (where possible);
• carrying out risk assessments (e.g of events or the workplace); and
• displaying signs encouraging preventative measures (e.g. hand washing).

Employee absence and application of Statutory Sick Pay (SSP)

In the light of the coronavirus pandemic, there have been changes to the sick pay provisions, as follows:

• emergency legislation will be fast-tracked, making SSP payable from the first day of sickness absence (rather than the fourth, as would be usual);
• small employers (with fewer than 250 employees) will be reimbursed for any SSP paid to employees in respect of the first 14 days of sickness which is related to COVID-19;
• a temporary alternative to the ‘fit note’ will be introduced in the coming weeks which can be used for the duration of the COVID-19 outbreak. This will enable those who are advised to self-isolate to obtain a notification via NHS 111 which they can use as evidence for absence from work.

SSP is currently £94.25 per week and will apply as follows:

Business sustainability: alternatives to business closure

Can you require some / all of your employees to take annual leave?

Under the Working Time Directive, employers have a right to require employees to take holiday on specified dates. However, the legislation prescribes that the notice an employer must give in respect of this is at least twice the length of the period of leave that the employee is being ordered to take. For example, if you require an employee to take two weeks’ annual leave, you must give them at least four weeks’ notice. Notwithstanding this, we consider that, particularly in the current circumstances, it would be open to you to try and agree specific annual leave with employees without providing the requisite notice.

The Working Time Directive does not require you to take the needs of employees into consideration when requiring holiday to be taken at specific times. However, you should be mindful that an employer which exercises its discretion unfairly, may give rise to potential claims from employees for breach of the implied contractual duty of trust and confidence. The employee could also resign in response to your actions, and claim unfair constructive dismissal. Therefore, we would encourage open and collaborative conversations with your employees about this issue, to facilitate staff engagement and limit the risks of any claims.

Can you enforce ‘short-time working’ / reduction in hours?

In some industries, it is common for contracts of employment to include a provision entitling employers to put employees on short-time working. Essentially, this means providing employees with less work (and less pay) for a period. Unlike redundancy, it is a temporary solution to the problem of a reduction in work.

If you have contractual provisions in your employment contracts which allow for short-time working, then these will be useful to exercise in the event that you either experience a downturn in business due to the economic impact of the virus, or wish to take steps to limit the spread between employees and customers/clients.

If you seek to enforce such provisions for which you do not have a contractual right, then you do risk claims for breach of contract, unlawful deduction of wages or constructive dismissal. The best approach in this situation is to try and agree any temporary change / reduction in hours with your employees and, wherever possible, keep a written record of their agreement or, at the very least, a note of a telephone conversation in which they verbally consented. Employees may well appreciate this measure as a delaying mechanism for potential redundancies further down the line.

Business closure

If a customer / employee has confirmed or suspected Coronavirus, do you have to close?

According to current government guidance (although this is subject to change), even if a member of the public or an employee with confirmed coronavirus has recently visited your premises, closure of the workplace is not automatically necessary. In this scenario, a Local Health Protection Team from Public Health England will contact your management team to undertake a risk assessment and provide advice on any actions or precautions which need to be taken.

If your business is closed for a period, what is the position regarding the payment of employees?

In circumstances where there is a closure of your business due to COVID-19 (whether by choice or further to direction from Public Health England), this will not normally affect your obligation to pay your employees full pay (assuming they are ready and willing to work and not, for example, sick and receiving company / statutory sick pay). However, it is clear that, if a business is forced to close down and revenue is cut off, but it is still required to continue paying employees, this could cause significant economic hardship and could even lead to permanent closures and redundancies in the long-term.

As with short-time working, some industries routinely include contractual provisions entitling employers to ‘lay off’ employees. Laying off employees means that the employer provides employees with no work (and no pay) for a period. In much the same way as short-time working, this is a temporary solution to the problem of a reduction / cessation in work.

If you have contractual provisions in your employment contracts which allow for lay-offs, then these may be useful to exercise in the event that you have to close your business for a temporary period.

If you do not have such contractual provisions and seek to enforce lay-offs in any event, there is a risk of claims for breach of contract, unlawful deduction of wages or constructive dismissal. As with short-time working, the best approach in this situation is to try and agree any temporary lay-off with your employees and, wherever possible, keep a written record of their agreement or, at the very least, a note of a telephone conversation in which they verbally consented.

HR issues: common questions

What if an employee refuses to follow hygiene rules?

In these circumstances, you are likely to be entitled to take disciplinary action. Disciplinary action could be taken on the basis that the employee has failed to follow a reasonable instruction by management.

What if an employee does not want to attend work?

If an employee refuses to attend work due to concerns of contracting the coronavirus, they are not legally entitled to SSP (see above).

If there are particular genuine health and safety concerns, you should try to resolve these and, if possible, offer alternatives such as remote / flexible working. If an employee still refuses to work, you may wish to consider permitting unpaid leave or holiday.

Notwithstanding the above, you should be mindful of those employees in ‘high risk’ categories (such as those over 70, or with underlying health conditions) and their possible concerns about attending work in the light of this. There is potential that, if you reduce / withhold pay as a result of their decision not to attend work on account of their risk status, then you may open yourself to potential discrimination claims.

How should you deal with cancelled annual leave?

It is important that you consider forward planning in terms of annual leave. In the short to medium term, a number of employees are likely to cancel annual leave requests (as a result of cancellation of flights and the closure of destinations). In the long term, once travel restrictions are lifted, you are likely to receive an influx of annual leave requests for the remainder of the holiday year.  You should ensure that your holiday policy is applied in a transparent, fair and consistent manner to avoid potential employee dis-engagement.

Is there anything else you need to consider as a result of employees working from home?

Even if employees are working from home, you are still responsible for their welfare, health and safety, “so far as is reasonably practicable”.  As a result, you should consider carrying out risk assessments of homeworkers to identify hazards and the degree of risk.  This is particularly important in relation to those employees with disabilities, who may require reasonable adjustments to be made.

This advice is accurate as at 17 March 2020.

For more information, please speak Rachael Lloyd or James Baker in the Employment team.

The legal profession has not been left untouched by Coronavirus and the ramifications of social distancing policies has led to various questions being raised with governing bodies, guidance being updated and best practice policies clarified.

Our team is busy updating clients in these challenging and uncertain times. We list below a number of points that might be useful.

UK Residence

A crucial question from some clients who may now be required to stay in the UK for longer than planned is whether and how this will affect their UK residence status for tax purposes. Helpfully, HMRC have updated the guidance on the Statutory Residence Test (SRT) which has extended the ‘exceptional circumstances’ to cover Coronavirus (COVID-19). The guidance states:

“Where an individual is unable to leave the UK as a result of being quarantined, self-isolated in the UK, being asked by the employer to return to the UK temporarily, being advised not to travel from the UK as a result of the virus or due to closure of international borders, such circumstances can be considered as exceptional, and any days spent in the UK can be disregarded for SRT purposes.”

This will provide some comfort for those individuals who do not wish to become UK tax resident, yet are currently unable to return to their country of residence.

The Foreign and Commonwealth Office advised against non-essential foreign travel on 17 March, and so our assumption is that individuals in the UK on that date, who then could not travel to a home jurisdiction as a result of that advice, would benefit from the exceptional circumstances exemption now included in the guidance.

Wills

Our team has seen an increased demand for wills. The signing of a will by the testator, and the witnessing of it by two independent witnesses, is an issue given the updated guidance which does not allow gatherings of more than two people (the signing of a will requires three people as a minimum). We have not yet introduced electronic wills in the UK, as the US have done. The Law Commission ran a consultation on the reformation of the law governing wills, which closed in November 2017, and has said that it would like to pave the way for electronic wills, however, this project is currently on hold and there is no indication as to when it may be re-visited.

The Solicitor’s Regulation Authority has had to answer various, urgent questions on this point, such as “what should I do if I cannot witness a will in the client’s presence?”  The given answer to that included determining whether the client has neighbours who could witness the signing at a distance or whether the attestation clause could be amended to cater for current circumstances.

As a practical response to this issue, we have helped clients execute documents by the testator signing in a car or by a house window, with witnesses standing two metres away outside, but with clear visibility of the testator signing his name. We are finding creative ways to work with the current rules to help clients, and it may be that these types of measures will need to be taken more regularly for the time being. The necessity of such steps having to be taken will add weight to the argument that the law surrounding wills and how they are executed ought to now be revised and brought into line with modern practice. Please do let us know if you have any questions.

Charities

The Charity Commission has released COVID-19 guidance for the charity sector . This will be added to over time and after relevant consultations. Included in the guidance is confirmation that charity trustees can hold virtual meetings, but they should check if there is provision to do so in the governing document. Where there is no such provision, the decision to hold a virtual meeting should be documented. It should also be determined if amendments could be made to the governing document to allow the use of telephone facilities or virtual meetings going forward.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Jennifer Ridgway, Partner and Head of Michelmores’ Tax, Trusts & Succession team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Will Coronavirus delay my conveyancing transaction?

In line with Government guidance we are continuing to operate on a remote working model which has been tested for the past three weeks. Michelmores’ Conveyancing team are working from home and we do not anticipate that this will impact adversely upon your transaction.

We continue to be available via email, telephone and the usual postal system.

We are noticing some slightly increased turnaround times where documents are required to be posted but, as far as possible, we will try to deal with matters via email.

What will happen now that the UK has been put into ‘lockdown’ and I cannot move?

Under the current lockdown provisions it is likely moving into your new property will not be considered ‘essential movement’.

Under the terms of the Law Society’s Standard Form of Residential Conveyancing Contract a Seller is required to give vacant possession upon completion and therefore the Seller would effectively be in breach of Contract.

However, the Heads of Conveyancing in the local area have agreed to adopt a reasonableness approach in these unusual circumstances in order to achieve the best possible outcome for all parties.

The Law Society’s Conveyancing Protocol requires that all Solicitors:

• Act with courtesy and co-operate with third parties and;
• Maintain high standards of courtesy and deal with others in a fair and honest manner.

The legal position is that if completion does not take place when contracts have been exchanged due to the effects of Coronavirus, then the parties who were unable to complete would be in default, however, whilst the contract provisions would still apply, it is possible for the non-defaulting party (most likely to be the buyer) to take a ‘good faith view’.

It will be at the discretion of the non-defaulting party as to whether they decide to enforce the terms of the Contract and serve a notice to complete. Whilst in the local area we are adopting a reasonable ‘good faith’ approach in light of the unprecedented times, we also deal with solicitors from further afield with whom the same approach has not necessarily been agreed.

The Law Society recommends that we do not make any substantial amendments to their Standard Form of Contract and therefore, in such uncertain circumstances, we do not propose drafting a Contract clause which would capture every situation. The Law Society has commented that:

“We do not consider that bespoke clauses are necessary or desirable as standard […] we do not think that we can assess the position sufficiently to attempt to provide any suitable clauses for such a wide range of potential situations.”

What aspects of my conveyancing transaction might be delayed as a result of Coronavirus?

• Searches: It is possible that your search results may be delayed. It has been reported that various Local Authority offices have been required to transfer to remote working, which we are expecting to create some delays.
• Disruption to banking systems: Exchange and completion both require the transfer of funds, and there may be some disruption to the banking system. At present, we have not experienced any difficulties.
• Requests for properties to be deep-cleaned/decontaminated could cause delays to exchange of contracts, as such services will not be considered to be essential travel under lockdown.
• Obtaining a witness to documents: A signed Contract will be required on exchange of contracts and, with your express, written authority, this can be signed on your behalf. However, we will require the signed Transfer and Mortgage Deed (if applicable) on completion. Both of these require a witness to your signature who has to be independent to you and not related by blood or marriage. We send documents to you as early as possible in the transaction and, in many cases, these will have already been returned. Please advise us immediately if you do not anticipate being able to return duly signed and witnessed documents before completion.
• Delays with the issuing of Mortgage Offers: A valuation of the property will need to be carried out before an Offer is issued. This requires a third party to enter the property you are purchasing, which may not be permitted by the Seller. Please liaise directly with the Estate Agent/Seller in this regard to establish the position before allowing a valuation to be scheduled. Some lenders are able to carry out a desktop valuation, which may mean they do not need to attend the property. You should discuss this option with your broker or lender.Due to the announcement about ‘Mortgage Holidays’ Mortgage Lenders are experiencing a high volume of calls and enquiries at present. This may delay the administrative aspects of issuing your Mortgage Offer.
• Removal Companies: It is likely removal companies will stop taking new instructions. Before exchange of contracts takes place ensure you have secured a removal company on a provisional basis to be confirmed once contracts have been exchanged, subject to the lockdown conditions in force. The British Association of Removers has instructed all members ‘only to complete any moves that are underway’ and ‘immediately cancel or postpone any move that has not yet started’. It is unlikely general house removal services will be deemed essential.
• The Seller being unable to move out of the property: Either due to self-isolation or lockdown the Seller may not be able to provide vacant possession of the property on completion. The Seller would effectively be in default as per the comments above and the Buyer would be able to claim for any loss incurred as a result of the Seller’s breach.
• ‘Signing off’ of New Build Properties: It is likely that the construction of new build properties will be disrupted due to tradesmen and building inspectors being unable to access the property and the potential closure of site offices.

What are the potential solutions?

• Simultaneous Exchange and Completion: This does not offer a great deal of certainty as there are no guarantees completion will take place on a set day until exchange has taken place. However, arranging for exchange and completion to take place simultaneously would ensure that you are not tied into a legally binding contract to complete until we can be certain there are not restrictions on your ability to move house.
• Leaving as little time as possible between Exchange and Completion: If exchange has not yet taken place it would be our advice not to exchange until the situation is more certain. If you still want to proceed with exchange and complete then we would suggest as little time as possible between exchange and completion, so that when you enter into a binding contract you can be reasonably certain of the situation at completion.
• Exchanging with a Completion Date later in the year or earlier by arrangement: There are no guarantees as to when the Coronavirus-related disruption will be resolved or when restrictions will be lifted. However, you could exchange contracts with a completion date in the more distant future or ‘earlier by mutual arrangement’ so this date could be brought forward if the circumstances allow. Please note: this would be subject to the expiry of your mortgage offer (if applicable).
• Putting Exchange on hold: As above, we are continuing to operate a remote working model and can progress your transaction over the coming weeks to the point of exchange and then agree an exchange of contracts and fix a completion date when the relaxing of the current lockdown has been confirmed.
• Exchanging to allow Legal Completion to take place: You could allow exchange of contracts and legal completion to take place at present. We are not noticing any difficulties with the banking system (but the situation is, of course, changing every day). We may be able to help you to agree a form of Licence to Occupy between buyer and seller to allow the seller to remain in occupation of the property after legal completion until the practical steps of moving out can be arranged. This may bring some welcome flexibility in these challenging times.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Louise Peters, Partner or Ellie Wonnacott, Solicitor in Michelmores’ Residential Conveyancing team.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

The Coronavirus is putting business tenants under intolerable financial pressure and some are finding themselves suddenly without any sales or income at all. Many business tenants told their landlords that they would not be paying their quarterly rent on 25 March; others have reached agreement to pay monthly, and still others have demanded greater concessions. But how should rural landlords react to this and how strong or weak a position are they in?

Lease forfeiture moratorium

Following the Prime Minister’s order for a lockdown, the gov.uk website says this about business leases –

Commercial tenants who cannot pay their rent because of Coronavirus will be protected from eviction, the Government has announced.

Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly but the Government recognises businesses struggling with their cashflow due to Coronavirus remain worried about eviction.

These measures, included in the emergency Coronavirus Bill currently going through Parliament, will mean no business will be forced out of their premises if they miss a payment in the next three months …

As commercial tenants will still be liable for the rent after this period, the Government is also actively monitoring the impact on commercial landlords’ cashflow and continues to be in dialogue with them …

The amendment to the Coronavirus Bill on commercial leases will apply to England, Wales and Northern Ireland [and] to all commercial tenants …

The change will come into force when the Coronavirus Bill receives Royal Assent. It will last until 30 June, with an option for the Government to extend if needed.

The announcement was implemented by section 82 of the Coronavirus Act 2020 on 25 March.

Whilst it is clear that there is now a statutory restriction on landlords forfeiting business leases if rent is not paid, it is important to note that:

• the measure will be time-limited, even if it continues beyond June
• the liability to pay suspended or deferred rent is not eliminated – it will remain as a debt owed by a tenant to a landlord

Why is this important?

Many landlords will have no desire or intention to forfeit a lease. However, the availability of the remedy is a weapon in a landlord’s armoury, when it comes to bargaining power and the terms on which any rent concessions are negotiated.

Forfeiture is only one of the measures to which a landlord could resort, if a tenant does not pay rent; a range of other bargaining levers are still available. Even if there is further Government intervention and they are also suspended, all these remedies should become available again, when the moratorium is over.

A tenant’s opening proposal is unlikely to be its only proposal

A landlord is rarely a tenant’s only creditor. How can a landlord get to the front of the payment queue?  Often the creditor who exerts the greatest pressure is the one who gets paid first.

A tenant who says he is never going to pay the rent due from the forfeiture moratorium period may think again if he is faced with the prospect of Commercial Rent Arrears Recovery (CRAR), or any guarantee or rent deposit being called upon, or court, or insolvency action. As matters stand, none of those remedies have been suspended at the time of writing.

But what if the tenant can’t pay, or would actually rather give up the premises?  A landlord will need to make a careful assessment of the situation: Is it better to have a tenant with at least a liability to pay rent, or would it be better to get the premises back?

Record any concessions in writing

In the present circumstances, many landlords have concluded that it would not be in their own interests to take action against tenants, which might increase the chance of them not getting paid at all.

If an agreement is reached about a rent concession, it is essential to record it in writing. Indeed, many tenancy agreements will require variations to be in writing. A deed of variation is unlikely to be necessary, but many leases will require any form of divergence from existing terms to be agreed in writing and, ideally, in a single letter or other document signed by both parties, or by an exchange of communications confirming the terms.

Impose a time limit

It is recommended that any agreed concession is strictly time-limited, regardless of the Government moratorium. For example, an agreement to pay on a monthly, rather than quarterly basis, should only be agreed until the end of the moratorium period. Make sure that is documented too. No landlord will want, what it believed to be a temporary concession, being alleged by the tenant to be a permanent concession.

Don’t accept return of the keys

It is possible that as the Coronavirus crisis continues, many tenants will give up and attempt to walk away from premises. Keys are frequently handed back in the mistaken belief by tenants that they can unilaterally terminate their obligations by doing so.

Unless a landlord is sure that he wants the premises back, it should be made clear to any tenant behaving in this way that keys will be held for safe-keeping purposes only, and that the lease has not been surrendered.

Check your insurance cover

Please refer to our article: Coronavirus update – insurance implications of unoccupied premises for more information.

If in doubt about anything, take advice

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Andrew Baines, Partner and Head of Michelmores’ Property Litigation team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.

Lease forfeiture moratorium 

Many business tenants decided not to pay their quarterly rent on 25 March; others have reached agreement to pay monthly, and still others have demanded greater concessions. Following the Prime Minister’s order for a lockdown on 23 March, the gov.uk website said this about business leases:

Commercial tenants who cannot pay their rent because of Coronavirus will be protected from eviction, the Government has announced.

Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly, but the Government recognises businesses struggling with their cashflow due to Coronavirus remain worried about eviction.

These measures, included in the emergency Coronavirus Bill currently going through Parliament, will mean no business will be forced out of their premises if they miss a payment in the next three months …

As commercial tenants will still be liable for the rent after this period, the Government is also actively monitoring the impact on commercial landlords’ cashflow and continues to be in dialogue with them …

The amendment to the Coronavirus Bill on commercial leases will apply to England, Wales and Northern Ireland [and] to all commercial tenants …

The change will come into force when the Coronavirus Bill receives Royal Assent. It will last until 30 June, with an option for the Government to extend if needed.

The announcement was implemented by section 82 of the Coronavirus Act 2020 on 25 March.

Whilst it is clear that there is now a statutory restriction on landlords forfeiting business leases if rent is not paid, it is important to note that:

• the measure will be time-limited, even if it continues beyond June
• the liability to pay suspended or deferred rent is not to be eliminated – it will remain as a debt owed by a tenant to a landlord

How is this going to be dealt with in practice?  Forfeiture is only one of the measures to which a landlord can resort if its tenant does not pay rent.

What are the landlord’s other options if the rent is not paid?

Unfortunately, there may be landlords who are unwilling to co-operate, or to share the pain.  So far, no restriction has been announced about the following landlord remedies.

CRAR, court action and insolvency

Tenants with stock or equipment on the premises may need to watch out if a landlord threatens “Commercial Rent Arrears Recovery” (CRAR). This has to be carried out by an authorised enforcement officer (previously known as a bailiff), but it requires a pre-action notice to be sent to the tenant. A tenant will therefore have some warning that CRAR is in prospect and may be able to do something about it.

Unfortunately, there are bound to be some landlords who are so un-co-operative that they sue for the rent in order to get a court judgment, and others who may simply invoke insolvency procedures, such as winding up. However, it is often possible to stay ahead of those threats through dialogue and by making reasonable proposals.

Guarantors and rent deposits

The previous tenant, or a parent company, or the tenant’s directors or proprietors may have guaranteed the performance of the tenant’s obligations under the lease, including the payment of rent. So many guarantors may find that they are pursued for the full amount of the rent if the tenant cannot pay an instalment, or only pays part of it.

A rent deposit may have been paid, and if the landlord draws on it, the tenant may be required to top it up. If the tenant does not do that, it may give rise to a debt claim and a court judgment against the tenant, which the landlord may seek to enforce, and which would damage the tenant’s credit rating.

The debt won’t go away

Even if all the landlord remedies are suspended, they will become available again once the moratorium is over. And even if a lease has come to an end in the meantime, it will only mean that forfeiture and CRAR cannot be exercised. So tenants will need to plan what to do about deferred rent.

Talk to your landlord

Legal trouble commonly springs from tenants not telling their landlords what they are proposing to do. Therefore, any tenant wanting to defer or restructure rent payments is strongly advised to discuss the proposal with their landlord.

Walking away is rarely the answer

Tenants should not think that handing the keys back to the landlord and walking away will be an end to the matter. Unless a proper surrender of the lease is agreed, either in writing or by operation of law, a tenant (and any guarantor) will remain liable, even if a tenant thinks it has given the premises back

More drastic measures

If there really is no alternative, it is possible that Administration or a Company Voluntary Arrangement (CVA) may be the only alternative. Both procedures are part of the ‘rescue culture’ which has arisen in recent years to keep businesses going, rather than to liquidate them and kill them off.

Administration has the effect of imposing a moratorium on creditors’ actions, but if premises are being used for the business, it does not prevent the landlord from claiming on-going rent as a debt in the Administration. However, the process may create a situation in which the business can be resurrected, with a lesser burden of debt.

If there are sufficient creditors who would support a re-structuring of debts, it is possible that a CVA may be the answer. CVAs have become particularly common amongst larger retailers (Debenhams, Carpetright, and others). They work if supplier-creditors are able to out-vote landlords. Thus it has become common for CVAs to propose that all supplier-creditors are paid in full, whilst landlords are required to take a rent reduction.

See our article about managing Coronavirus disruption.

Record any agreement in writing

Whatever a tenant agrees with the landlord, it should be documented; this avoids argument later. Many leases and other contractual documents contain provisions which prevent variations (including concessions) unless they are agreed in writing.

Finally:  Speak to us

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Andrew Baines, Partner and Head of Michelmores’ Property Litigation team.

CORONAVIRUS STOP PRESS – Click here to keep up-to-date with all of our latest articles.

This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.