With a quarter of the world in lockdown due to coronavirus Covid-19, UK commercial (and residential) landlords and tenants continue to face the day-to-day issues associated with owning or renting property.
One of the major issues that has arisen for the commercial property management sector is missed or partial payments of rent.
On 23rd April, a new survey conducted by Re-Leased of 10,000 retail, industrial and office properties revealed almost half of the quarterly commercial rents due in March remained unpaid. Usually ‘paid’ rate at this point is closer to 79%, showing a massive increase on the norm.
Immediately thereafter, the government banned commercial property landlords from pursuing legal action to ‘aggressively’ recover rent arrears during the current emergency. They have been prohibited from sending tenants statutory demands, formal requests for payment or winding-up orders until 30th June. So, unless commercial landlords are owed 90 days of unpaid rent they will be unable to use rent arrears recovery or send in the bailiffs, and all other methods of enforcement are effectively blocked.
Neil Chatterton, Managing Director of Caxtons, a multi-discipline firm of chartered surveyors based in Kent said, “Many of the larger multiples in particular have not paid any of the quarters’ rent which was due on the 25th March – we might conclude in the knowledge that landlords are powerless to enforce payments. However, with these measures in place, all tenants still remain liable for the rent during the period to 30th June.
“We are finding that many smaller tenants have made more effort to pay something, possibly monthly or part of the rent.”
Caxtons is encouraging its commercial landlords and tenants to be flexible at this time of crisis and to reach agreement on how and when outstanding rent should be paid. In response, some landlords are granting a rent free period to vulnerable tenants.
Neil continued, “Generally our approach has been to point tenants in the direction of government help that has been made available, in particular, grants of £10,000 or £25,000, a year’s business rates free, deferred VAT and tax payments and the government backed coronavirus loans.
“We are looking, on a case-by-case basis, to agree deferred payments of the quarters’ rents. Some tenants are pro-actively putting forward proposals, both realistic and unrealistic. Many landlords are accommodating tenants – for example by allowing them to repay monthly between June and December.
“We are also finding that tenants are keener to agree repayment arrangements, as they know that if they don’t they will be open to forfeiture and other enforcement action post lockdown and when other restrictions are lifted.”
An issue that may be preventing both tenants and landlords from committing to a strategy is uncertainty, not knowing when lockdown will be lifted and ‘normality’ will return or when their income will resume.
Looking forward, tenants who paid March quarters’ demand may find that June is an even greater problem, having had little or no income in the interim period. Neil says “We would advise tenants to look at whether their landlords might agree to monthly payments over the next quarter.”
One other angle that, if suitable, both landlords and tenants can explore is re-gearing their lease in return for a rent concession. This may include tenants agreeing to remove break clauses, or extending the length of the term in return for a rent free period. If tenants have no intention to operate a break clause in the foreseeable future they will lose nothing but gain a rent free period when they most need it. This can work favourably for both parties especially as landlords will be assured of a guaranteed longer term let, which is also likely to increase the value of their investment.
Neil concluded “Caxtons’ efforts are largely to ensure that as much rent as possible is paid by tenants whilst trying to balance this with assisting those who are most in need and to avoid their business failing, which in turn will be to the detriment of the landlord with void property and re-letting costs.
“Most government assistance is aimed at tenants, but many landlords are dependent on rents for their income or have substantial loans to service, although in most cases the banks are offering interest or interest and capital repayment holidays.
“We will do everything we can to assist our landlord and tenant clients and our message is to talk to us and plan now, rather than leaving it until problems arise or become unmanageable.”
