It is difficult to think of any area, or anyone, who has not been affected by the Covid-19 Pandemic. Aside from concern over illness and well-being of one’s self and others, thoughts are naturally being paid towards the economic and financial impact that the national and international restrictions on trade and movement are having. One such area being the property market and, in particular, Landlord and Tenants.
Unlike the financial crisis, we know that the immediate constraints should be temporary and will pass. Almost certainly a number of us cannot wait for the first meal at our favourite restaurant (or pint at our local pub), or to hit the shops. But what does a Landlord or Tenant do until then, particularly as there are still obligations to meet and often on both sides? No one wants to make a decision that could have adverse implications in the future.
We at Wollens have been inundated with queries from Landlord and Tenants alike as to what to presently do if for example a Tenant is unable to pay its rent. As part of our Covid-19 series of articles and information, the following are intended to be some useful points to consider if you find yourself in this situation:
- The first and most obvious plan of action is to talk to each other. Do not assume for example as a Landlord that a Tenant may not be able to pay any rent at all, or that they wish to vacate. A number of Tenants will most likely want to be back up and running as much as is possible immediately once movement restrictions are lifted.
- If you have a mortgage over your property, talk as soon as possible to your lender to see if a repayment holiday can be agreed. Whilst the 3-month repayment holidays announced by the government as part of its collaborative effort with lenders to ease the economic impact of the crisis are primarily aimed at residential mortgages, a number of lenders are being accommodating with business borrowers in a similar fashion.
- If you are a Landlord and have a rent review due under a lease, consider whether it is appropriate to exercise it now. The likelihood of a Tenant being able to meet any increase in rent now is pretty slim and, due to a depressed market, may not in fact upon a review necessarily lead to an increase in any event. Equally, most rent review clauses in leases enable a Landlord to exercise a rent review at any time after a stipulated date, meaning that you could revisit the point later on once the market improves.
- Is there a guarantor of a Tenant to a lease? It may well be the case that they are in a better position to be able to meet in whole or part a Tenant’s obligation under a lease. If you have a rent deposit, is it possible that this can be drawn upon first in lieu of any rental payment, with the deposit being made up again gradually in the future.
- You may also be a guarantor if you provided one when you previously assigned/sold your lease to a third party. Such guarantees (called ‘Authorised Guarantee Agreements’ or ‘AGAs’) are fairly common and may leave you liable if the person you sold to is now unable to meet their lease obligations. If some circumstances, you may even be liable to take a new lease for whatever length of time remains if the Landlord forfeits the current lease.
- Rent concessions are some of the most common and easiest help remedies available. If a Tenant pays quarterly for example, it may assist with cashflow (and the likelihood in receiving any rent) if monthly payments were agreed. A reduced rent for this period of time may also be agreed. Whatever may be settled on, ensure that it is properly recorded in a signed letter between the Landlord and Tenant as evidence if it is ever challenged in the future.
- Forfeiture or accepting a lease surrender should very much be considered as remedies of last resort by the Landlord (especially if the only breach is due to non-payment of rent). Without a lease in place, a Landlord may find themselves liable for business rates after 3 months (retail premises) or after 6 months (industrial). Given that the prospect of re-letting quickly in the current climate would be challenging, it may be more financially beneficial to a Landlord to keep a distressed Tenant in-situ for the time being.
- If you are a Tenant considering offering the premises back, be careful of simply just posting the keys back through a Landlord’s door. Whilst it is possible to have an implied surrender by operation of law as a result of an unequivocal act, a Landlord is under no obligation to have to accept any such act by way of a surrender.
- Be careful also of ‘sham’ tenancies being created just to ensure that premises are no longer deemed void and potentially not liable for business rates. Such action may well be classed as criminal and could lead to prosecution from the Local Authority.
- Is it possible to be flexible as to the permitted use of premises? The government has for example permitted restaurants and cafes for a temporary period during the Covid-19 pandemic to trade as takeaways (which may normally require formal change of use consent from the Local Authority). This would not however licence a tenant to be able to automatically trade as such if it would breach the user provisions in the lease, so consider speaking with your Landlord. Landlord’s may also need to consult their lender and building insurers for agreement to this.
- It is of course also entirely possible that there might in fact be third parties interested in taking on the premises, so do not discount the prospect of speaking with a commercial agent to market them! Any sale would however need to be mindful of the government guidelines on social distancing as are presently in force.
If you are a Landlord or Tenant worried about your positon and want to discuss your options, we would be more than willing to help. Do contact Ashley Bevans on 01803 225122 or email [email protected]