The impact of COVID-19 and the lockdown has required us, our clients and all of those involved in real estate transactions to change usual processes and inject creativity into our work to ensure our client’s objectives are met.
In this article, members of the Property group reflect on some of the key trends we have seen in recent weeks.
On 26 March 2020, the Government issued guidance making clear that whilst the health of individuals and the public must be the priority, there is no need to pull out of residential transactions. Careful measures need to be adopted to ensure social distancing can be maintained.
The unprecedented and quick-changing nature of the current crisis means that in matters in which contracts had been exchanged prior to the lockdown, the contractual provisions did not cater for COVID-19. The strict contractual position is that the buyer and seller must complete on the completion date or penalties will apply; however, the Property group is finding that a number of parties are adopting flexibility and reasonableness and even varying contracts to allow for a later completion date or for completion to take place after a certain fixed period of notice.
In the case of matters which had not exchanged at the time of the Government imposed lockdown, we are seeing a rise in drafting designed to deal with the possible impact of COVID-19 on completion of a transaction. We have also seen a rise in exchange and completion taking place simultaneously to mitigate against the risks of the unexpected.
Exactly which COVID-19 provisions are included will depend upon the nature of the transaction. However, we have seen provisions which alter the consequences of a late completion and those that allow the completion date to be pushed back in the event of unexpected matters arising.
By way of an example, COVID-19 provisions may take into account the possible unavailability of people key to the moving process (e.g. removal workers, staff at the mortgage lender or indeed the buyer or seller) together with the inability to sign documents in a timely manner or further measures being introduced on a local or national level to slow the spread of COVID-19.
The lockdown has led to delays in the return of many of the usual searches normally obtained during the conveyancing process as part of the due diligence. Whilst not appropriate in every case, we are working with other industry partners to provide indemnity insurance to obtain cover against the risks of proceeding without full searches.
We are also seeing evidence of virtual viewings taking place using 3D imagery and videos. This is particularly useful for some of our internationally base clients. In cases where physical inspection is possible, we also have surveyor contacts who are continuing to provide surveys (whilst complying with Government guidance and maintaining social distancing).
We are also seeing a rise in mortgage valuations being carried out remotely based on photographs or a video alongside other information obtained online and from other sources. This is often followed by the need for a physical inspection following the lifting of the restrictions to confirm the earlier advice but with the date of valuation being at the original report date.
Where despite our best efforts, it is impracticable to proceed to exchange of contracts, we have experience in assisting clients with Exclusivity Agreements to provide breathing space to allow for those matters to be completed within good time whilst ensuring the buyer retains exclusivity in respect of its ability to acquire a property.
We continue to advise our clients who range from occupiers to investors and developers on the impact of COVID-19 on contractual obligations.
This has included advice on the possibility of occupational arrangements becoming frustrated or the ability to rely upon force majeure provisions as well as in relation of remedies and consequences of non-payment of rent. We have, in some instances, negotiated and documented rent concessions and rent deferrals.
Alongside our advisory work, we have noticed an increase in bespoke COVID-19 clauses to deal with issues caused by the pandemic. Those issues tend to be similar to the ones faced in the residential market and described above but also include matters pertaining to delays in tenant fit-out works and landlord’s works. This is of particular importance in retail and leisure premises where the tenant may be unable to open until those works are complete. We are seeing a rise in requests for fit-out periods (and rent free periods linked into them) to be extended to take into account the issues caused by COVID-19.
We have noticed a move towards more electronic signing. Whilst this is not always possible (e.g. depositionary deeds that need to be registered at HM Land Registry), electronic signing can help to deal with practical issues caused by signatories not having access to printing and/or posting facilities. We have acted on a number of transactions where sale contracts and (non-registrable) deeds have been executed electronically. However, the authenticity of signatures is obviously of key importance and so it is important that parties make use of secure signature platforms when doing so to prevent any issues being raised down the line in relation to valid execution.
We are finding that the London office market, in particular, has remained resilient in face of the challenges posed and transactions are continuing. It is quite common for office leases to be contracted outside the security of tenure provisions in the Landlord and Tenant Act 1954 (the 1954 Act). This has led to some practical issues in terms of dealing with the contracting out process.
The contracting out process set out by the 1954 Act requires the tenant (or someone authorised by it to do so) to swear a declaration confirming that the tenant understands the implications of the lease being contracted outside of the 1954 Act. Such declarations are usually made in front of an independent solicitor which is presenting difficulties in present circumstances.
Whilst much less commonly used, it is possible for a tenant to instead swear a simple declaration (which does not need to be made in the presence of an independent solicitor) and then wait 14 days prior to completion. Given the difficulties in finding an independent solicitor, some of our clients are adopting the use of simple declarations as a workable alternative.
Whilst there are undoubted issues caused by the spread of COVID-19, we continue to work with our clients to help achieve their objectives. Not only are we using new approaches to deal with the uncertainty, but we are also finding that others working in the Property industry are as well.
The English and Welsh property market remains one of the most open in the world and it is the view of many commentators that it will continue to stay desirable for domestic and international investors despite the current uncertainty.