Due to the COVID-19 pandemic, commercial tenants are seriously challenged as their businesses take a battering. Commercial tenants have received financial support, including legal protection preventing landlords from evicting them or triggering forfeiture.
It is right; the Government provides financial support and legal protection to tenants, which in turns supports the broader economy.
However, the plight of commercial landlords has almost been ignored and is of equal importance. The only source of income for landlords is rent. If the rent is not paid, then landlords are just as vulnerable to the failure of their businesses as their tenants.
By the time the ban on eviction for not paying rent is due to expire at the end of March 2021, some tenants will not have paid rent for more than a year.
Commercial landlords are nursing heavy losses due to tenant rent defaults, placing increased strain on debt covenants. There is concern from investors as to a recovery in dividend payments.
There were around 630,000 businesses in significant financial distress at the end of December 2020, a 13 per cent rise in the prior quarter.
Commercial landlords must continue to service the loans to avoid bankruptcy.
The commercial landlord sector is at risk of collapsing if the Government fail to support them. Some large retail landlords collected as little as 25 per cent of all rent due in December 2020.
The 25% rent will not service the monthly loan repayment, and landlords have other operating costs to pay too.
The Government needs to act quickly and support this sector to avoid landlords being made bankrupt and tenants being kicked out by lenders to sell the security.
There is no suspension of a tenant’s legal obligation to pay rent. However, legislation under COVID-19 has had a similar effect, including:
- Landlords cannot currently forfeit a lease for non-payment of rent.
- No winding-up petition can now be presented against a tenant.
- The remedy of Commercial Rent Arrears Recovery has been limited with a minimum of 366 days of rent arrears currently required before a landlord can seize a tenant’s goods to the value of the debt owed.
Some landlords have resorted to other options to recover rent. These include:
- Pursuing lease guarantors
- Debt recovery proceedings
- Drawing on rent deposits.
Little financial support is available for commercial landlords in the form of loans.
The governments initiative, the Code of Practice for commercial property relationships during the pandemic, applies until April 2021. This requires landlords and tenants to be amicable and work together.
Tenant protection measures will have to come to an end. Landlords will need to decide whether to bring forfeiture proceedings against tenants with substantial rent arrears.
Landlords who have not cooperated with tenants may find the courts may not quickly award possession and or damages.
There is little doubt that, following the pandemic, there will be wholesale changes to the way space is used, particularly retail and office space.
Landlords, tenants, and local councils will find the world has changed, and we need to adapt how we use space in buildings that may no longer be fit for purpose in this new norm.
Mr Sajjad Ahmad, the CEO of the British Landlords Association, said: “Commercial landlords need financial support, and that support needs to be a grant rather than loans.”
“Their debt is already growing as some landlords are receiving as little as 25% of the rent. To support the economy, the Government must ensure positive financial measures are taken to support commercial & residential landlords“.
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Author: Harrish Patel harrish@thebla.co.uk
Date: 4th of March 2021
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