As a result of the coronavirus pandemic many businesses are really suffering economically. This financial stress, along with changes in the law and interventions by Government are affecting the way people are enforcing their contractual rights. Toby Claridge a partner and head of the Cornwall dispute resolution team at Stephens Scown LLP sets out some of the changes and what they mean for farmers.
Have the principles of contract law changed?
The short answer is no, not yet. However, there is likely to be a flurry of decisions by the courts arising from the effects of the Coronavirus pandemic.
On 7 May the Government issued Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency. This stated that the parties should ‘act responsibly and fairly’ and be ‘reasonable and proportionate’ towards each other. The position is to be kept under review so we may well see more Government intervention in the near future.
Whilst good in principle, we wait to see the effect of these Guidelines, and whether parties will take a different approach, and to what extent the courts will enforce such change of behaviours.
Can I enforce non payment of rent by forfeiture or repossession?
The legal position for liability for payment of rent (be it commercial or residential) has not changed unless agreed between landlord and tenant.
However, the consequences for non payment of rent have changed. For residential tenants from 26 March to 30 September 2020 any notices seeking possession now need to be at least three months. Additionally, possession proceedings will be suspended for 90 days from 26 March and no new possession proceedings can be commenced.
For commercial tenants, currently up to 30 June 2020, a landlord cannot forfeit a lease for non payment of rent, which can extend to service charges and insurance rent. If the lease is for less than six months these provisions may not apply. This time period might be extended.
Can a tenant claim to be released from having to pay rent?
Probably not. The threshold to be able to claim frustration of a lease is very high, and so long as premises are legally occupied then it is unlikely that threshold will be reached under current law. The exception is if there is a specific clause in the leases that allows suspension or cancellation due to a pandemic. Known as a Force Majeure clauses, these are rare in leases.
Do I need to repay deposits received for holiday lettings or weddings?
Maybe, but much depends on when the booking is for, the terms of your contract, and whether the deposit was made by a ‘consumer’ (broadly an individual acting outside of their business) or not. The Competition and Markets Authority have said they believe that such deposits are repayable under the Consumer Rights Act 2015, as not to do so would be unfair. But this only applies to consumers. Even then you may be able to retain some money for expenses already incurred.
This is a complex area and we offer a number of flowcharts and a fixed price package to help you to navigate this process, you can find more information here.
A customer owes me money, can I take them to court?
Yes, you can. You will need to adhere to the relevant pre-action conduct and protocols (if applicable) and only issue proceedings as a last resort. Do your utmost to communicate constructively with any debtor and bear in mind the Government Guidelines referred to above. Remember, bringing in a third party facilitator or mediator can often help resolve an impasse.
There is talk about the Courts being swamped with claims. What can I do about that?
There is a growing private justice system where parties resolve their differences by appointing an independent person to act as an evaluator, adjudicator or arbitrator. There is no reason why parties cannot agree their own forum in which to resolve a dispute. It has a number of benefits such a speed, cost and privacy, all of which may become even more relevant.
If you have difficulty enforcing any ruling made in your favour you can have it registered as a court judgment, which currently can carry interest at 8% if over £600.
Can I enforce any such judgment?
Most of the methods to enforce a judgment remain. Some physical forms of enforcement, such as removal of goods are temporarily suspended for most judgments. However, you can still obtain charging orders and orders over debts owed by third parties.
Can I make someone bankrupt or windup a company?
The Government has brought in draft legislation that means from 27 April until 30 June (or one month after the legislation comes into force) no statutory demands may be relied on or winding up petitions presented if the debt is unpaid for reasons relating to Covid-19.
Also, a number of new insolvency regimes have been introduced to help companies continue to trade whilst still technically insolvent as a result of the pandemic.
There is a clear shift in required behaviours when trying to enforce your rights during this time. How long these will continue is unknown but it is likely to have a long lasting impact on how claims are brought and enforced possibly for many years to come.