LATEST: Blow for commercial landlords as tenant wins court battle

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International gym operator Virgin Active has won court appeal to have it’s recovery plan implemented against strong opposition from landlords, writes Tom Entwistle.

A London court has ruled in a commercial tenant’s favour allowing it to write off some of its rent arrears on the majority of its venues. Despite strong opposition from its creditors, Virgin Active will now avoid future steep rent payments.

The Virgin branded gym operator has welcomed the court’s decision for its controversial restructuring plan that the company says will save thousands of jobs across its international locations. It argued that had the action been lost, the company feared the business would have had to go into administration within days.

The gym business was launched in Britain in 1999 and has grown to 236 clubs in eight countries including Australia, South Africa, Italy and Botswana, with over one million members worldwide.

Severe blow

The ruling represents a severe blow for landlords as it is likely that more companies will now follow suit and seek a reduction in their debt using the same previously untried court process.

With many retailers, and especially those affected by the shut-downs, have seen their rent arrears and other debts building-up since March 2020 when the pandemic brought about closures for non-essential sales, gym operators being a prime example.

During the court hearings Virgin Active’s counsel argued that without the restructuring plan it was putting forward, the company would go into administration. This, it was argued, would be the worst of all outcomes for most classes of the gym company’s creditors.

In a statement the company had said: “Virgin Active is pleased that the court has supported its view that the restructuring plan represents a fair solution to the impact of the Covid crisis which has resulted in our clubs being closed for most of the last year.”

However, the landlord representatives had argued that the company could have tried other options, such as selling the business or selling off some venue assets, to address its debt problems.

Mr Justice Snowden, presiding, ruled that with Virgin Active’s restructuring plan “no member of a dissenting class will be any worse off than they would be in the relevant alternative.”

Meaning that this course of action was better that that entering into administration, throwing hundreds of employees out of work and selling off parts of the business.

Landlords are now worried by the ruling. They put up strong opposition to the new court processes which allow companies to restructure in this way as, are they argue, it “sets a dangerous precedent”.

Landlords say it allows wealthy backers to extract value in good times but claim insolvency when times are tough.

The Virgin Active group, which is 18% part-owned by Sir Richard Branson, has faced serious cash flow problems since the pandemic started as, like many similar non-essential leisure businesses they have had to close their doors for long periods.

Dangerous precedent

Speaking for the commercial landlords, the British Property Federation (BPF), the commercial real estate trade association’s chief executive Melanie Leech said: “This restructuring plan sets a dangerous precedent.

“The law is now allowing wealthy individuals and private equity backers to extract value from their businesses in good times but later claim insolvency, as simply a means to get out of their contractual obligations with property owners.

“This is fundamentally inequitable and the government should not allow it to continue.”

Under the new ruling landlords of commercial properties could be forced to write off millions of pounds in rent arrears at a time when many of them are struggling with their own financial problems.

Financial pain

The company’s landlords including Aberdeen Standard Investments and British Land say that they will now be left “shouldering a disproportionate part of the financial pain” from the Virgin Active plan.

Virgin Active sought to implement its refinancing plan under Part 26A of the Companies Act, meaning that creditor groups, such as its landlords, could in future be forced to accept a struggling tenant’s terms, even if they vote against the scheme.

Virgin Active’s new approach the it’s problems follows a string of controversial company voluntary arrangements over recent years as retailers faced declining business on the high street. These have been used by leading chains of retailers including Debenhams, Arcadia Group, New Look to name but a few.

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Government tax policies shrink buy-to-let property purchases by 250,000 over five years

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The government’s assault on private landlords is achieving its much-predicted end-game as new research reveals that 250,000 fewer buy-to-let properties have been purchased by landlords over the past five years.

Estate agency Hamptons says the reduction in buy-to-let property purchases is a direct consequence of the government’s 3% stamp duty surcharge on second home purchases and the Section 24 tapering of mortgage interest relief.

It is five years since the additional stamp duty charge was introduced for landlords and four years since the mortgage interest changes began to kick in.

These changes have also generated other dramatic changes – in 2015 landlords bought 16% of properties on the market each year, but today that figure is 11%.

London hit hardest

Hamptons also says that London and the SE have seen the greatest drop in landlord purchasing activity, from 20% of the market in 2015 to 11% now.

As a result, landlords have purchased 61,300 homes in London since 2016.  However, this number would have risen to 103,300 or 69% more homes had the tax changes not been introduced.

This drop-off in new investment means 81% of all rental homes in the capital today were bought before April 2016, compared to just 65% in the North West where landlord purchases have remained more resilient.

Aneisha Beveridge, Head of Research at Hamptons, says: “The tax changes introduced from 2016 onwards have undoubtedly taken the heat out of the buy-to-let market.  Landlord purchases have dropped and consequently the rental sector is 7% smaller than it was at its peak in 2017.

The NRLA recently called for the 3% additional stamp duty levy to be scrapped.

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Council launches ground-breaking scheme to buy empty properties off private landlords

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Landlords with empty properties in Middlesbrough are being urged to sell up to a local housing group looking to source more social rented housing.

The scheme – an initiative between Middlesbrough Council and the Ethical Housing Company (EHC) – aims to tackle both the issue of poor living conditions and the high number of empty properties.

It is expected to get the go-ahead next month to start in Newport, North Ormesby and the town’s central ward.

Councillor Ashley Waters, executive member for regeneration, told the Local Democracy Reporting Service that EHC would work hand-in-hand with the council.

He said: “We blame the landlords for empty properties. Look at the state areas get left in, and how the people who get put in these houses get no support.

“This is about being able to go in and get these homes to what we call a ‘social housing standard’. We’ll then be able to support people in the area with good housing and good rates to improve the area.”

Tees valley

EHC runs alongside the Ethical Lettings Agency, which lets and manages properties for private landlords. The community interest company has a portfolio of more than 60 properties in the Tees Valley area which it has bought from home owners and landlords, often off market. 

Waters added: “If we’ve got £500,000 to spend and they can put in £500,000, then we can do double with the same amount of money.

“We’re not saying to landlords ‘we’re going to buy these properties off you’, or use compulsory purchase orders. What we’re saying is, where we can, we’re going to improve areas.”

EHC director Carla Keegans (pictured) tells LandlordZONE that properties in these areas – covered by selective licensing schemes – are empty largely due to over-supply and poor condition.

“She adds: “We are backed by long-term social investment with a social purpose to help meet housing need. This project is an example of us working with a local authority to help bring up standards in problem parts of the PRS in defined places as part of wider regeneration plans.” 

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – Council launches ground-breaking scheme to buy empty properties off private landlords | LandlordZONE.

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Minister reveals bid to re-launch commonhold with help from new ‘industry council’

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The government has launched an initiative to re-ignite interest in Commonhold, the tenure introduced in 2002 by the then Labour government but which has failed to catch on.

Housing secretary Robert Jenrick (pictured) has announced a Commonhold Council which will be charged with reinvigorating interest in the tenure, which he says is a key plank in the government’s plans to give property owners ‘more control over their home and building’.

The announcement is one of the key recommendations into reforming property market made by The Law Commission last year.

Commonhold enables property owners, usually within apartment blocks, to take collective control of a building and take greater control of who manages it and the costs involved.

But the tenure has not taken off in the way many had hoped, largely because developers and freeholders find leasehold more lucrative via ground rents and other charges.

Also, commonhold doesn’t suit the many mixed-use developments that are being built these days and it hasn’t been supported by mortgage lenders.

To remedy this the Commonhold Council is to have representatives from many organisations within the property market.

This includes RICS, the British Property Federation, Building Societies Association, Federation of Private Residents’ Associations, Home Buying and Selling Group, Home Builders Federation, Law Society, campaigning Leasehold Knowledge Partnership and 12 others.

Rather oddly, though, no representatives from the property management sector are on the council.

“We are taking forward the biggest reforms to English property law for 40 years – and the widespread introduction of commonhold builds on our work to provide more security for millions of existing leaseholders across England, putting an end to rip-off charges and creating a fairer system,” says Jenrick.

Simon Law (pictured), Chairperson of the Society of Licenced Conveyancers, says: “We have long campaigned for reform of leasehold legislation and a move to widespread adoption of Commonhold in its place.
“It is greatly encouraging that the Government is now taking this seriously.”

Read more about the government’s plans.

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LEGAL latest: Landlord’s cavalier approach to deposit ends up in court

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A prospective tenant has been awarded his holding deposit back by a First Tier Tribunal after realising the landlord had demanded too much money.

Student Oluseyi Aina agreed to take a room at a house in Southbridge Road, Croydon, after seeing an advert on spareroom.com.

Landlord Janice Oliver requested £300 as a holding deposit, which he paid by bank transfer, but then found out this was not allowed because the rent was £500 per month and the maximum permitted payment was £115.38 – one week’s rent.

Aina asked for a refund but Oliver told him she would only return £100 and would keep £200 as admin fees. She added that the property had since been let out by her husband. After the conversation, he had sought advice from the Shelter helpline.

Oliver told the court that Aina had difficulty in raising the money for the rent and that she decided to let the property out for a fortnight to give him time to do this.

Daily rent charge

Oliver indicated that a daily rent would be charged which would be forfeited if he did not take up the tenancy.

She said he told her he no longer wanted the property and suggested that he had made the application because she was unwilling to return the full sum of £300.

However, the tribunal ruled that: “A landlord must not require a relevant person to make a prohibited payment to the landlord in connection with a tenancy of housing in England.”

It said the payment of £300 fell within the definition of a holding deposit and that as it represented more than one week’s rent, the excess over £115.38 was a prohibited payment. The landlord and tenant had also failed to enter into a tenancy agreement before the deadline for agreement.

Read more about holding deposits and the law.

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LATEST: Landlords waiting 37 weeks longer to evict tenants, official figures show

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Landlord repossessions took an average of nearly 58 weeks in the first quarter of the year, up from 21 weeks during the same period in 2020.

The Ministry of Justice’s mortgage and landlord possession statistics report for January to March has revealed the true impact of the evictions ban, showing how landlord possession claims (6,377), orders for possession (5,427), warrants (2,480) and repossessions (262) by county court bailiffs have dropped by 74%, 72%, 80% and 96% respectively.

While the government this week announced plans to wind down the ban, which will see bailiffs restart their work on 1st June, it’s expected that it could take many months before the courts return to normal.

According to a recent report by LSE London, the courts are set to buckle under the pressure once the eviction ban ends with delays unlikely to reduce.

A fall in volumes was seen across the country but applications were focused in London, where 1,965 landlord claims and 1,152 landlord orders were made at the capital’s courts during January to March, accounting for 31% and 21% of all claims and orders respectively.

Local variations

Landlord repossessions were highest in Exeter with 22 per 100,000 households, but were mainly concentrated in the South East, followed by London, the West Midlands and the South West.

Private landlords made up the largest proportion of landlord claims (44% or 2,833), in contrast to the same quarter in 2020, when they made up 24% of all claims.

The report says timeliness is volatile for landlord orders, warrants and repossessions due to low volumes being processed. But it adds:

“This should be taken in the context of extremely small volumes and the invariable additional time needed where normal courts procedures could not be followed.”

However, Landlord Action founder Paul Shamplina tells LandlordZONE that the courts were already struggling prior to Covid.

He believes cases will ramp up and predicts there will be 150,000 possession claims made in 2022.

Shamplina adds: “It’s been horrendous for those landlords who have accumulated rent arrears – we’ve never seen so many cases where landlords are owed more than a year’s rent with very little likelihood of getting it back.”

Pic credit: Channel 5/DCBL Ltd

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Portfolio Landlords: Now is the time to sell your properties for the best price

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House prices are predicted by many to fall following the end of the stamp duty holiday and tax bills are high. If you’re a portfolio landlord, now could be the perfect window to sell part or all of your buy-to-lets

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Lack of new properties to let putting pressure on prospective tenants

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A slowdown in the supply of new homes in April has seen price growth accelerate across the UK, according to the RICS Residential Market survey, April 2021. Meanwhile, a lack of new properties to let has also put pressure on prospective renters.

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5 Top UK Buy To Let Property Investment Hotspots

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Where to find property investment hotspots for Buy To Let (BTL) in the UK.

In this video, I go through the top 5 Buy To Let Hotspots in 2021 and the number one best strategy to capitalise in hotspot areas.

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OPINION: Is banning Section 21 evictions a bridge too far for the government?

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In January LandlordZONE predicted that the Renters Reform Bill was to have been well on its way through parliament by now.

At the time, the government had been promising for month after month to fix the ‘broken’ private rental market.

Ministers had said repeatedly this was to be achieved through the Bill which would ban Section 21 evictions, give tenants more security in their tenure via longer contracts and make it easier to manage deposits, among other things.

But this week’s Queen’s Speech ‘kicked all of this into the long grass’, as one senior landlord figure put it to me; the government is starting from scratch with a White Paper in the Autumn, after which fresh proposals and legislation may be announced.

Landlords, letting agents and even tenants’ organisations are baffled by this – there have already been two consultations for the Renters Reform Bill, so who why do it all again?

The ‘real politick’ of this is that giving renters more rights sounds great during hustings but is very tricky to implement on the ground, whatever Shelter might say, and also expensive to police.

Keeping tabs on deposits and redress within the rental deposit can be done by people on call centres. Ensuring tenants are treated properly requires boots on the ground, knocking on doors.

Two-year roadmap

So action is to be delayed. And looking at the schedule, for some time. LandlordZONE estimates that if the White Paper is published in September, followed by a 12-week consultation and then draft legislation is laid in parliament in early 2022, it will take around nine months to make it to Royal Assent.

So late 2022 at the earliest, with implementation likely to take another 12 months to give landlords, agents and tech time to get ready (like the Tenant Fees Act did) – so a potential 28-month or two year roadmap, which would take it perilously close to the May 2024 election.

Most experts agree that the government will, instead, cut out all the difficult stuff like lifetime deposits and instead focus on balancing the rights of tenants and landlords so that renters get longer, more stable tenancies should they want them, and courts are given more discretion when granting evictions.

I suspect, as The Law Society has suggested, landlords will have to grant longer contracts, give tenants much longer notice periods when seeking to regain possession and even reimburse tenants should they wish to move back in or sell a property earlier than agreed.

On the other hand, tenants who deliberately dodge paying their rent, make too much noise or sell drugs from their front door, for example, will be ejected much more quickly and cheaply than now.

Unfortunately, we will have to wait another four months to find out.

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