Victory for commercial landlords in latest High Court challenge

The CVA process has been favouring other creditors over landlords, they argued – writes Tom Entwistle. The ©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Victory for commercial landlords in latest High Court challenge | LandlordZONE.

Victory for commercial landlords in latest High Court challenge

The CVA process has been favouring other creditors over landlords, they argued – writes Tom Entwistle.

The retail decline, exacerbated by Covid-19, has seen the Company Voluntary Arrangement (CVA) increasingly invoked by struggling businesses.

Struggling retailers in particular have increasingly been resorting to the CVA process which enables them to restructure their companies thus to some degree avoiding their liabilities and in particular their long-term lease liabilities. The process has allowed many retailing groups to close their unprofitable stores, while retaining control of their more profitable ones and carry-on trading.

The mechanism of a CVA also allows them to avoid their other liabilities to their creditors as well as getting their rents reduced under existing leases.

The landlords’ argument in Carraway Guildford (Nominee A) Ltd and others v Regis UK Ltd and others (2021) was that the result of Regis CVA ruling was that it was for the benefit of the tenant’s company shareholders, finance creditors and trade suppliers at the expense of the landlords.

Unfair processs

The case was prompted by the landlords’ concern about the rising number of CVAs (33 new CVAs in 2020 alone), and about the apparent unfairness of the process vis-à-vis landlords and the other creditors. It prompted some of the UK’s biggest commercial landlords to apply to the High Court to challenge what they identified as the worst excesses of the CVA.

The challenge was over the recent CVA involving the Regis hairdressing group CVA. With respect to the Regis CVA, the applicant landlords’ argued in court that landlords’ rights were significantly impaired, with rents reduced by between 25% and 75%, and arrears reduced to just 7% of their value.

The mandatory vote at the creditors’ meeting at which a majority of 75% of creditors by value had to approve the CVA, the value of landlords’ claim was reduced by 75%. By contrast, a long list of “critical creditors” – including the company’s shareholder, International Beauty Ltd (IBL) – were left entirely unimpaired by the CVA.

A key upshot of the appeal was the judge ruling that the CVA Regis be revoked on the basis that it favoured shareholders at the expense of landlord creditors. He deemed the CVA unfair to the commercial landlords as it favoured shareholders at the expense of these impaired landlords.

The landlords behind the appeal in Guildford (Nominee A) Ltd and others v Regis UK Ltd and others therefore have won a rare victory for all landlord creditors, the judge in the case setting some clear parameters for how far future CVAs can go without being seen to be unfair.

Mr Justice Zacaroli (pictured), said, to summarise: “IBL was… wholly owned by Regent, a global private equity firm… and to the extent that the company’s debt burden, in particular to landlords, was reduced, Regent as equity holder stood to benefit”.

As an unimpaired creditor, IBL would receive payment in full of a £600,000 debt. On the other hand, for the other creditors, a compensation fund of just £330,000 was provided to meet the claims of all impaired creditors.

The judge said it appeared that IBL had been given favourable treatment only because it was the company’s shareholder, rather than for any objectively justifiable reason, which otherwise would not have affected the CVA.

This, he reasoned, was unfairly prejudicial against the impaired creditors, including the applicant landlords. On that basis, Judge Zacaroli held that the Regis CVA should be revoked, meaning that it should be treated as never having taken effect.

Anyone interested in the full technical details of the High Court ruling can find them here:

©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Victory for commercial landlords in latest High Court challenge | LandlordZONE.

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Tragic death of tenant in house fire is wake-up call to landlords

The tragic death in a house fire of a tenant who was undergoing daily care for complex ©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Tragic death of tenant in house fire is wake-up call to landlords | LandlordZONE.

Tragic death of tenant in house fire is wake-up call to landlords

The tragic death in a house fire of a tenant who was undergoing daily care for complex health conditions, has highlighted the need for landlords to comply with fire regulations.

LandlordZONE insurance partner, Hamilton Fraser Total Landlord Insurance, were alerted to the tragedy when they received the new claim last week.

Neighbours noticed heavy smoke billowing from the semi-detached house and called the fire brigade. But despite the Bedfordshire fire brigade attending the fire promptly and removing the tenant, who received medical care on site, the tenant had diedy while in the property.

It was later confirmed that the tenant had fallen asleep smoking, setting the lounge alight with an unextinguished cigarette.

This sad story accentuates the need for landlords to make sure they are doing all they can to prevent a fire in their property. In October last year, another Bedfordshire landlord was prosecuted following the death of a tenant in a house fire at an HMO after a judge concluded that there were inadequate fire precautions in place – there were no fire doors and the fire detection wasn’t linked between rooms and might not even have been working.

The landlord also claimed that he believed the property had been let as a single tenancy, when in fact there were seven people living in the property at the time of the blaze.

In this case, the landlord admitted failing to take general fire precautions, putting tenants at risk of death or serious injury. 

Prison sentence

The judge commented that the landlord ought to have known who was in the house and would have done, had he carried out regular inspections. The landlord was sentenced to four months’ imprisonment, suspended for 12 months, with a fine of £20,000 and £12,000 costs.

The landlord involved in Hamilton Fraser Total Landlord Insurance’s recent claim was sadly unable to prevent the death of their tenant, despite complying with fire safety regulations.

Although it’s a situation no landlord would wish to find themselves in, at least they don’t have to live with the guilt or the consequences that they were responsible.

Steve Barnes (pictured), Associate Director at Hamilton Fraser Total Landlord Insurance adds, “Fire damage claims are among the most expensive that insurers receive. The UK average fire claim value is £19,527 and in London this rises to £51,138.  

“More importantly, a fire in your property poses a significant risk to your tenants’ safety and could leave them injured, or even worse.

“As a landlord you are legally obliged to provide suitable fire safe accommodation. If you are found to be in breach of your obligations legal action could be taken against you. And in the event that there is a fire in your property, and you have not provided suitable fire safe accommodation, the consequences could be even more severe.

“It is therefore extremely important to take fire safety seriously.”

This case raises some pertinent questions – can landlords prevent their tenants from smoking in their property? And what can landlords to reduce the risk of fire?

Can landlords prevent tenants from smoking in their property?

Cigarettes cause a third of all accidental house fires and fires started by cigarettes kill more people than any other type of fire. Fire services across the UK are frequently called out to deal with fires started by cigarettes.

“People might think that we rarely get called out to deal with fires that were started from smoking but, between the start of 2018 and the end of 2020, we attended 125 smoking related incidents in Northamptonshire,” says Chief Fire Officer at Northamptonshire Fire and Rescue, Darren Dovey.

Given the detrimental impact of smoking on a property, it is understandable that most landlords would prefer to rent their property to a non-smoking tenant.

In a survey carried out by Easyroommate.co.uk, 38 per cent of private landlords said they would go so far as to evict tenants who smoked inside their property.

The reality is that a judge is unlikely to grant a possession order for such an ‘offence’ unless they have breached multiple clauses of the tenancy agreement – it’s one thing asking your tenant not to smoke and another enforcing it.

The best course of action is to prevent such a situation from arising in the first place by advertising for a non-smoking tenant. Of course, there is the risk that prospective tenants may not be truthful, but this should be a deterrent to most.

Including a non-smoking clause in the tenancy agreement preventing your tenant and their guests and visitors from smoking inside the property is also a good idea as this will protect you legally. If you suspect that your tenant is smoking in your property despite having included a non-smoking clause, it is worth sending them a timely reminder that smoking is prohibited.

What can landlords do to reduce the risk of fire?

As a landlord, you are legally obliged to provide suitable fire safe accommodation and there are a number of safety regulations that you must comply with. You must:

  • provide a smoke alarm on each storey and a carbon monoxide alarm in any room with a solid fuel burning appliance (for example a coal fire or wood burning stove)
  • make sure there is access to escape routes at all times
  • make sure the furniture and furnishings you supply are fire safe
  • provide fire alarms and extinguishers if the property is a large house in multiple occupation (HMO)

For more information on how landlords can reduce the risk of fires and the fire safety precautions you’re legally obliged to take, read Hamilton Fraser Total Landlord Insurance’s guide, How to reduce the likelihood of fire in your rental property.

Regulations are particularly stringent around houses in multiple occupation (HMOs), so it’s important to understand the specific regulations that apply to your property if you’re letting an HMO.

As a valued LandlordZONE reader you’re entitled to 20% off Hamilton Fraser Total Landlord Insurance’s policies, call the team today on 0800 63 43 880 quoting code LZ2021 or get a quote online in under 4 minutes.

©1999 - Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® - Tragic death of tenant in house fire is wake-up call to landlords | LandlordZONE.

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