On taking the reins as chair of the Property Litigation Association, the professional body that represents 1,400 of his peers, last month Mathew Ditchburn proclaimed there has been “no more important time in recent memory to be a property litigator”.
Ditchburn, partner and head of real estate disputes at Hogan Lovells, is well-placed to make such an assertion – and, as the property sector reckons with the continuing impact of a pandemic that will soon extend into its third year, he has ample evidence to back it up.
“There is the new arbitration process to deal with commercial rent arrears,” he says. “None of us have ever seen anything quite like that before. And I think we can expect a sharp correction as government support and protections fall away, leading to a greater number of company failures, restructurings and insolvencies.”
And that, Ditchburn adds, is only the beginning. “The experience of going through the pandemic has made some question whether the landlord and tenant relationship needs more fundamental reform. If that happens then we must get it right and not make decisions in haste now that we regret for years to come.”
Assessing the pandemic
Covid-19 has brought significant professional changes for Ditchburn, some of which have been positive.
“With the advent of Zoom calls and Microsoft Teams, I’ve found that, if anything, I get more face time with clients than ever before, even if we’re not in the same room,” he says. “It’s so much more efficient than getting a train across town for a meeting.”
Remotely held court hearings also tend to be quicker once the “waiting around” and travel time is eliminated. Ditchburn recalls one trial listed at the start of the pandemic that was adjourned for 12 months because the judge refused to hold it remotely. “One year later, we were still in a pandemic, so he had no choice – the trial went ahead remotely and ran very smoothly.”
Ditchburn is proud that the PLA provided online events to help members with the mental health impacts of the pandemic. “Being a property litigator can be stressful at the best of times,” he says. “That can be made more difficult when you are not around colleagues who you can seek out for support or even just to bounce ideas off. I think that lockdown was particularly hard for junior practitioners who really missed that social interaction.”
In addition, the PLA switched to holding training events remotely. Not only did that allow the organisation to react quickly to hot topics, but attendance rose as greater numbers of people from around the country tuned in. Learning from this, the organisation’s autumn training day in November 2021 took place as a hybrid event. Still, Ditchburn is looking forward to the resumption of the PLA’s annual conference after two years, with “a day of unsurpassed thought leadership, networking and hospitality” in Oxford in March.
On a personal level, the Ditchburn family acquired the obligatory lockdown dog, a cocker spaniel called Ginny, to assuage Ditchburn’s daughter’s “Harry Potter fixation”. While he delights in getting out into the fresh air walking Ginny, he laments that one of his longstanding passions – the Hogan Lovells band, Bat Out Of HL, in which he performs main vocals and lead guitar – has been on hiatus throughout the pandemic. “It would be lovely to get back to playing again, like MIPIM, or winning Law Rocks again, or doing the firm’s summer or Christmas party,” he says, hopeful for 2022. “There’ll be a big comeback, I’m sure. As Neil Young sang, rock and roll can never die…”
Traps and loopholes
The real estate impacts of Covid-19 are similarly enduring and focusing on them is among the PLA’s key priorities. As well as keeping its members well-trained on major developments, the organisation wants to ensure that the voices of property litigators are heard as what Ditchburn describes as “the true experts in this area when it comes to law reform”.
To that end, there is plenty for the PLA to tackle, including the Commercial Rent (Coronavirus) Bill and its accompanying new Code of Practice published in November; the Law Commission’s upcoming 14th programme of law reform; and the government’s planned wider review of commercial landlord and tenant legislation, which Ditchburn notes could put “upwards-only rent reviews and turnover rents back in the spotlight”.
As for the bill – and the arbitration system for resolving outstanding lockdown-related commercial rent disputes it will introduce – Ditchburn says: “We are told that there are £7bn of accrued commercial rent arrears. The government is proposing to tackle that problem by introducing a new scheme for independent arbitrators to decide how much tenants should pay and, in the meantime, landlords will continue to be prevented from taking enforcement action to recover protected rents.
“That’s quite a revolutionary idea when you think about it. What it means is that solvent tenants can have their lease commitments rewritten because they were not able to use their premises during the pandemic, even though landlords remained obliged throughout to supply it to them.”
He is quick to point out that it is not the PLA’s role to take a political position on these matters, as its members represent landlords and tenants alike, “some of whom will have quite opposing views on the principle of the proposed new scheme”.
He continues: “What we can do, as property litigation experts who know the market and the clients who will be using this scheme, is identify any design flaws – the traps and loopholes that might stop it functioning properly – and help government to come up with the best scheme possible. That is particularly important because the scheme is so novel. We are really heading into uncharted territory.”
For the scheme to work, he believes arbitrators must be equipped to reach the right decisions. If awards appear arbitrary or inconsistent, it will quickly lose credibility. “That means we need to have enough arbitrators to cope with the potential deluge of cases,” he adds. “They need to have the right skill set and be properly trained. Arbitrators will have a tough job. Imagine having to tell a business that they are not viable and so can’t access the scheme, and what the consequences might be if you get that wrong? You have to wonder how much success the government will have in recruiting enough quality people to do the job.”
Pushed for his personal view on the imposition of a mandatory arbitration scheme in this scenario, he admits to “concerns about the unintended consequences”.
“The government’s idea is that the threat of arbitration will encourage parties to negotiate settlements. But many landlords and tenants were already doing just that, particularly in the run-up to the end of June when the moratorium was meant to expire. Extending the moratorium for another nine months and then having an arbitration process that could take a long time to run its course, especially if it gets snarled up in a backlog of cases, just risks kicking the can even further down the road.”
Another possible consequence is that it could act as an encouragement for tenants to propose CVAs in the new year before the scheme takes effect, which is the “opposite of what the government wants”. But he has little fear the scheme will set a precedent for further encroachment on litigation: “I am hoping that this sort of mandated arbitration scheme is a once-in-a-lifetime event – limited to wartime and pandemics.”
Appeals on the horizon
This year has seen a number of Covid-related cases hit the courts, but it feels like only the beginning – 2022, it seems, will bring more, higher-profile battles. As Ditchburn puts it: “We’ve had all the first instance cases, next we’ll get the appeals.” These include rent disputes between Bank of New York Mellon and tenants including Cineworld and Sports Direct, as well as, he understands, the clash involving Picturehouse Cinemas and the owner of London’s Trocadero.
Ditchburn also believes there will be more tenant restructurings in 2022 as the lifting of the moratoriums on rent enforcement draw near, because the arbitration scheme will not apply to all tenants or all rent arrears. “That may result in more challenges reaching the courts,” he says, “particularly with restructuring plans which are still a relatively new process. It would be surprising if we didn’t see some appeals coming out of the new arbitration scheme too.”
After the spate of landlord challenges to CVAs and restructuring plans in 2021, Ditchburn says it is necessary to “pick through the rubble to work out where that has left us”. He adds: “The days of CVAs being an easy win for tenants are, I think, over. The market has come to expect serious landlord opposition to them.”
He says that cases such as the Regis UK CVA challenge, where “the always controversial 75% discount applied to landlords’ votes was found to be wrong”, have shown that it is possible for landlords to get an unfair CVA revoked. In addition, he is waiting to see how the judge’s ruling on “vote swamping” in the New Look case – that it is likely to be unfair for a CVA to compromise landlords where it is passed by the larger votes of unaffected creditors – will affect the market.
With the new year fast approaching, and Ditchburn’s 12-month stint as PLA chair just beginning, it seems fitting to end with some words of inspiration. Asked what his “Christmas message” would be for property litigators hurtling headfirst into 2022, Ditchburn keeps it admirably brief and to the point. “Well done for getting through 2021,” he says. “Have a happy and relaxing Christmas – because there will be a lot to do next year.”
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