Covid-19 and Commercial Property Law – Key Considerations

The Covid-19 outbreak and the unprecedented requirement for social distancing continues to present never-before seen contractual issues and logistical problems in the property market. Legal practitioners are having to adapt working practices and enhance critical thinking to address scenarios which have otherwise been approached in a standard and uniform way for years.

Our July 2020 summary of the latest Landlord and Tenant specific considerations, following the impact of Covid-19, is as follows:

Landlord and tenant: Code of Practice

The Ministry of Housing, Communities & Local Government has published a voluntary Code of Practice for managing commercial property relationships and transactions during the COVID-19 pandemic. The Code of Practice has been endorsed by a steering group of leading representative bodies, namely the British Chambers of Commerce, the British Property Federation, the British Retail Consortium, the Commercial Real Estate Finance Council Europe, Revo, the Royal Institution for Chartered Surveyors and UK Hospitality. The ministerial foreword states that the Code will enable businesses to come together to negotiate affordable rental agreements, while emphasising that “tenants who are able to pay their rent in full should continue to do so, whilst those businesses that cannot pay in full should communicate with their landlord and pay what they can.”

Execution of Documents

The Law Society has updated its position statement on the use of virtual execution and e-signature during the coronavirus (COVID-19) pandemic to provide practitioners with some “Tips on how to operate in practice”, which include:

  • Following the Law Society’s published Practice Notes on “Execution of documents by virtual means” and “Execution of a document using an electronic signature”;
  • Always agreeing a course of action with lawyers acting on the other side of a transaction;
  • Considering what steps need to be taken to verify the identity of a signatory and the authenticity of a signature;
  • Retaining evidence of those steps, including screen shots where appropriate;
  • Reporting electronically to clients on completion of transactions; and
  • Understanding the legislative, regulatory or cultural requirements for virtual execution and e-signatures in the relevant legal area.

Land Registry ID Procedures

The Land Registry published Practice Guide 67A in May 2020 to set out temporary changes and requirements to be followed in relation to providing evidence or confirmation of identity of unrepresented persons. The Land Registry has tweaked Forms ID1 and ID2 in response to feedback from the profession. Form ID1 for individuals, or Form ID2 for bodies corporate, are the forms on which an unrepresented party’s identity can been verified. Remote working and social distancing means that much identity verification is done by video, and the Land Registry accepts this. Where verification of a person’s identity is done by video call, a conveyancer completes new Form ID5 in addition to completing a Form ID1 or ID2. Those forms have now been amended to make it clear that if you are verifying a person’s identity by video call, you do not complete Section B of the form. Section B requires production of a person’s original identity document and would normally require that person to send in their original passport. With video identification, section B is not completed. You complete Form ID5 instead.

SDLT relief

Where, through the purchase of a dwelling, the purchaser becomes the owner of an interest in more than one dwelling, higher rates of SDLT (the 3% SDLT surcharge) often applies. For individuals, however, the higher rates of SDLT do not apply if the purchased dwelling is a replacement for the purchaser’s only or main residence. A dwelling is purchased as a replacement residence if the purchaser intends it to be the only or main residence and disposes of the existing residence within three years of the additional acquisition. The higher rate of tax is initially paid, but if the existing residence is sold within 3 years, the original tax return can be amended, and tax can be reclaimed.  Delays in the housing market caused by the COVID-19 pandemic can make it difficult for the taxpayer who has paid the higher rate of tax to fall within the three-year time period. However, the pandemic will not necessarily deny them a repayment of the surcharge. HMRC states that an extension of the time limit for repayment may be permitted where HMRC is satisfied that the taxpayer was (a) prevented by some exceptional circumstance beyond their control from disposing of their previous main residence within the three-year time limit, and (b) sold the previous main residence as soon as they reasonably could after ceasing to be so prevented. HMRC states that “exceptional circumstances” might include being prevented from selling the property owing to government guidance during the COVID-19 pandemic, or other action taken by a public authority preventing the sale of the property.