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How is the COVID-19 outbreak impacting the living sector?

Sold your house or exchanged contracts? Or are you a landlord in build to rent, a developer concerned about contractors on-site or part of the later-living sector? We’ve got your coronavirus questions covered.

What is the housing market doing?

Moving house is probably one of the last things on people’s minds at the moment. Although when we come out of any isolation period, we may well have noticed a number of defects in our homes having spent so many hours between the same four walls. Currently, estate agents are reporting that sellers are a little reluctant to welcome strangers into their homes due to the risk of spreading the coronavirus, and likewise buyers are putting their searches on hold for the foreseeable future. At the time of writing, valuers are still largely being permitted to visit client sites to do their valuations.

What if you had already exchanged contracts and were due to move?

Parties are unlikely to want to use their contractual rights in the manner they would have done pre-COVID-19 (i.e. serving a notice to complete to make time of the essence). We do however expect parties to give each other extra time should removals be unavailable or a buyer or seller is struck down with the virus. This is going to take a collaborative approach throughout the chain of course and we are now increasingly seeing COVID-19 drafting in contracts.

Landlords are considering their obligations in ‘build to rent’, affordable housing blocks and student accommodation blocks. What are their concerns?

As these blocks tend to be dense living accommodation, landlords are keen to reduce infection risks on the basis that residents are home more than usual, using the same lift, doors etc. Our clients are naturally asking what the landlord’s obligations and duty of care are, beyond the basic cleaning regimes they offer? A high number of occupiers in private rented accommodation and student accommodation are foreign occupiers (students / millennials), some of whom are being called to come back home by their families.

We are therefore seeing queries on the ability of occupiers to break their tenancy agreements for force majeure or other reasons. Investors are also considering whether they should be granting some rental concessions and the parameters for doing so. Indeed the Residential Landlord’s Association are suggesting their members should give their tenants some grace periods if affected. In this case, we query how an occupier will prove illness or loss of income? For schemes which are about to complete, investors are also considering the impact of the inevitable fall in occupier take-up.

Later living has been booming in recent years – do you see the COVID-19 pandemic changing this?

COVID-19 is known to disproportionately affect the older members of society and so the recent Government guidance (16 March 2020) recommending that the over 70s stay home for 12 weeks (other than for exercise) is not unexpected. Regardless of what happens with this pandemic, the UK has such a chronic beds shortage that the demand for beds in care homes or retirement villages is unlikely to wane. Also, pipelines are two to three years from acquiring land to getting planning, to starting on site and procuring PC. The opportunities are therefore so scarce that, whilst there might be some some short-term wobbles on deals where pricing was punchy, the fundamental demand will still be there when we come out the other side of the pandemic, even with a high mortality rate.

What about developments where contractors are on site?

If clients are in the development phase of a project, parties are naturally going to have concerns about the following:

  • Contractor’s labour shortages due to illness. Contractors will most likely be looking to claim extensions of time for reasons of force majeure.
  • A more formal lockdown, meaning that sites are actually closed, would be more clear cut in terms of the contractor being compelled by law to comply with a lockdown.
  • Key milestones being missed, opening up the developer to liquidated damages claims unless they too can claim extensions of time or renegotiate long stop dates.

Whether force majeure clauses will provide any comfort will turn on the case-specific drafting of JCT building contracts, development agreements and agreements for lease and potentially forward funding agreements. The interplay between these documents is complex at the best of times and a detailed review of milestones, delay provisions, and liquidated damages provisions will be essential.

Are there still opportunities for acquisition and disposal of strategic land?

The gestation period for bringing strategic land through the promotion and planning process should mean that transactions will not fall over and can continue through the immediate disruption.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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