COVID-19 - Guidance for Bridging Lenders

The Covid-19 emergency has impacted all sectors of the global economy and created a period of unprecedented uncertainty and challenge for all businesses, large or small.

This briefing note provides an update on how the legal system in England and Wales has reacted to the emergency and how some of the changes made will apply to the Bridging Finance space.

Possession Claims

Section 81 of the Coronavirus Act 2020 imposed various restrictions on properties let under residential tenancies, including extending notice periods required under statutory notices and imposing an obligation on courts to ensure that no possession orders are granted with an earlier date for possession that 30 June 2020.

More pertinent for Bridging Lenders when considering enforcement at these difficult times however, is the general stay placed on all possession proceedings for residential property. The stay was given legal effect by the new Practice Direction 51Z, which came into effect on 27 March 2020.

Under this new Practice Direction, all proceedings for housing possession brought under CPR Part 55 and all proceedings seeking to enforce an order for possession by a warrant or writ of possession are stayed for a period of 90 days from 27th March 2020. This effectively means that any pending possession proceedings will not result in possession being obtained until the expiry of that stay, at the earliest. This applies even where a possession order has already been obtained and just needs to be enforced.

Actions taken by Receivers

The powers given to both LPA Receivers appointed under statute and private receivers appointed under deed remain unchanged. Receivers are still free to take appointments. However, there are obvious practical restraints to what a receiver and their agents can do in these circumstances. A receiver cannot issue a possession claim (due to the general stay discussed above) and there will be challenges regarding attending subject properties to inspect and secure them due to social distancing rules.

However, where a property is income generating, receivers can still be appointed to manage that income and divert it to the lender, so that outstanding liabilities are at least reduced if not settled in full. In addition, the appointment of a receiver and the threat of the action which receivers can take, either now or in the future, can often serve as stimulus to borrowers to do all that they can to discharge their obligations.

Finally, where receivers are already appointed and have already taken possession of subject properties, there is strong anecdotal evidence that there is still a healthy appetite in the market, with a number of receivers reporting strong interest at recently held auctions.

Delays in Court Proceedings

HMCTS has committed to maintaining a functioning judicial system, in relation to civil as well as criminal matters. However, for obvious practical reasons, many claims will be subject to delays and adjournments.

Where possible, hearings are being arranged (and in some cases, re-arranged) so that they can take place remotely. This is now the case with all insolvency hearings, including the hearings of bankruptcy and winding up petitions.

In addition, the courts have introduced a "Priority" and "Non-Priority" classification to try to ensure that the claims which are deemed to be the most

important are given priority when it comes to allocating court time. In the Civil sector, injunctions and emergency family work are deemed to be "Priority" whereas straightforward debt claims are likely to fall into the "Non-Priority" category. Parties to claims do have the power to agree that a particular case ought to be treated as a priority and to apply to the court for it to be deemed as such. Courts will judge each case on it's merits and there is little guidance as to what type of case will/will not be considered a priority at this point.

The situation with the Priority/Non-Priority classifications and with the courts generally is fast-moving and fluid. We will provide further briefing notes if the situation changes substantially in future.

Going Forward

Industry guidance across all sectors is for lenders and borrowers to maintain dialogue and to try to take a pragmatic approach to ensure that, where possible, the status quo is maintained until the emergency passes. However, we can appreciate that in times like this, cash-flow becomes ever-more important and so forbearance will not always be possible.

DKLM is still open for business and we are happy to provide further, more case-specific advice and to discuss any issues which you may have at this difficult time.

If you have any queries, please contact our Head of Property Litigation, Michael Adamson.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.