COVID-19 and Covenant Breaches in Leases and Loan Facilities
The Government has published the most recent Health Protection (Coronavirus Restrictions) (England) (No. 4) Regulations 2020 (“the Regulations”), taking us into a second lockdown, which will likely remind buyers and sellers of the months in which they could not view houses and building sites, and added complications to exchanging contracts, or completing transactions. However, the weather is not the only difference between this lockdown and the last one; the new regulations contain significantly more exemptions across the board, including for the property market, which should mean there is a lot less disruption this time around.
As before, the Regulations create a general prohibition on leaving your home ‘without reasonable cause’. In the previous lockdown, house moves were permitted only when ‘reasonably necessary’, and the guidance was to defer moving until after the lockdown.
Regulation 6 creates a list of exceptions to the prohibition on leaving your home, and Regulation 6(2)(g) creates a list of activities in connection with the purchase, sale, letting or rental of a residential property. The activities permitted include; visiting estate agents, viewing properties, preparing a property for a move, moving house, and visiting a property to ‘undertake any activities required for the rental or sale of that property’. All in all, Regulation 6(2)(g) seems to create a very broad list of activities that can go ahead during the next four weeks, and should provide a level of comfort to those buying, selling or letting a home.
Regulation 6(2)(g) refers exclusively to residential property, and the Regulations do not mention commercial property, meaning the general prohibition ought to apply. However, those involved with property transactions may be permitted to leave their home under some other, wider exceptions. Regulation 6(4)(a) permits a person to leave the house for work, where it is not reasonably possible for them to work, or provide their services, from home. Many ‘physical’ elements of commercial property work such as surveyor’s inspections, repairs, and fittings cannot be done from home.
Businesses which are forced to shut, however, such as hospitality businesses and shops, may struggle to argue that it is necessary for certain works to be undertaken during the lockdown, as they know they will not be able to open during this period. In any event, the Regulations do appear to grant businesses a fairly wide margin of appreciation when it comes to interpreting reasonableness and necessity.
The Government has made clear since this new lockdown was announced that construction can continue, and the Prime Minister referred to construction and manufacturing explicitly in his statement on Saturday as workplaces which can remain functioning. While Regulation 6(4) was always likely to apply to construction work, this explicit reference to construction provides much greater certainty on the Government’s intention in introducing this legislation, when other sectors may feel less sure of their position.
These regulations are in force for four weeks only, and when they expire, the Government will have to introduce new rules, which it hopes will be regional and tiered, as before. In any event, it seems likely that for the foreseeable future, there are very few clear cut restrictions for property transactions, and provided parties maintain social distancing and hygiene measures, they should be able to carry on with their businesses.
If you would like to discuss how the Government's current advice may affect your property transaction, please contact a member of our Real Estate & Construction team.
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