As the impact of Covid-19 continues to have a profound effect on our high streets, UK commercial landlords are finding themselves in increasingly challenging unchartered waters. With the prospect of disruption continuing for months, and even years, into the future, we look at how Attwells can help with advice for commercial landlords about how to protect themselves in these unprecedented times.
Back in March, just before the date that many commercial tenants would have been due to pay their first quarterly rent of 2020, the government announced all tenants would be protected from eviction until the end of June.
In the following weeks, a short-term ban on statutory demands was put in place, alongside a ban on arrears recovery proceedings.
Understandably, the government wants to protect the high street, but this has left many commercial landlords with limited recourse should their tenants stop paying rent.
Meanwhile, some analysts have identified that more than a quarter of rent due in March wasn’t paid by tenants.
If you find yourself in this position, what can you do? We have set out below our advice for commercial landlords who are in this situation.
What should you do if a tenant requests a rent holiday?
The government has been vocal in encouraging tenants and landlords to communicate and reach agreements together, with the aim of giving both parties the best chance to survive the current lockdown and be able to stay afloat as things return to a ‘new normal’.
Whether you are open to offering your tenant a break from paying rent, or even offering a suspension of rent is up to you, and depends on your financial situation, and how you see the future of your premises. But key points you should consider are:
- How long would you grant a suspension for? Would there be options to renew at the proposed end date?
- Are you suspending rent payment entirely, or deferring it to a later date? Will the tenant pay interest?
- Will you have the power to terminate the suspension, and on what grounds?
Any agreement you come to should be formally documented, in clear language, so you and your tenant are clear on what is required from both sides.
You should also make clear this agreement is a temporary break from the terms of the lease, rather than a new lease itself.
Are commercial landlords entitled to a mortgage holiday?
Unfortunately, the kind of mortgage holidays that homeowners and buy to let landlords are entitled to have not yet been extended to commercial landlords. However, the various cash injections the treasury have implemented since the coronavirus outbreak mean banks are likely inclined to grant requests to defer payments.
If you’re in this position, it’s better to speak to your lender and inform them of any cashflow issues you feel may be approaching, to see if arrangements can be put in place to help you.
What should you do if your tenant becomes insolvent?
Should your tenant go into administration, they will be protected from legal action for a statutory period. During this time, your options to recoup arrears may be limited.
If your tenant is still using the premises after they go into administration, then the administrators could be obliged to maintain rent payments as part of their expenses. This will be payable at a daily rate.
You should communicate with the administrators, to work out rent payment terms, and find out their intention for the business. For example, do they intend to find a buyer? Should an administrator offer to surrender the lease, it’s important not to accept their surrender unless you are happy for the lease to end. Be aware that accepting the keys for the property could be seen as accepting a surrender in some instances.
The bigger picture
Landlords are being put through incredible stress at present, and with uncertainty on the horizon in the near term, it’s important to look at the bigger picture. Many businesses which only a few months ago would have been seen as strong are now struggling under the current conditions. For every business that fails at this point, the risk of a reduced demand for commercial real estate once the pandemic has receded increases. This could lead to a much bigger hit to commercial landlords’ portfolios in the longer term, beyond what should be a short-term issue with struggling tenants.
So where possible, it’s in your best interests to be amenable to tenants where possible, and that should lead to a robust recovery that benefits all parties once we get out of this ditch.
For more legal help and support please call Nick Attwell on 01473 299242.