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Covid-19 Help For Landlords

Mark Johnson
March 2020

25th March 2020

 Today is the March Quarter day and we are aware that many tenants are approaching Landlords requesting rent suspensions or reductions to assist with business cashflow given the current Covid-19 climate.  Some landlords are already offering to not send out rental requests for this quarter’s rent, however this depends on individual circumstances.  We understand that the government has just announced a restriction on the Landlord’s ability to forfeit leases for at least a 3 month period for non payment of rent.  The rent will still be payable in the future and we are yet to see the details of the change.

In terms of coming to a consensual agreement with tenants, you may find the following suggestions useful in how best to deal with these issues:

  • The UK Government has set out a package of emergency measures to support businesses through this period of disruption caused by COVID-19. Please find attached a summary of the measures available. We recommend that tenants are made fully aware and have factored this into their requests for changes to their lease terms.
  • A key consideration in any assistance offered to tenants should be to preserve their long term survival as a viable tenant for your property, therefore cashflows and business plans should be discussed with them before agreeing new terms.
  • Changes to lease arrangements could include any or a combination of the following;
  1. Move to monthly payments rather than quarterly in advance to ease cash flow.
  2. Agree a reduction in rent for say a 3 month period to coincide with movement restrictions. It might then be agreed that the rent reduction is to be paid back over a longer period.
  3. Agree a rent free period if the tenant is unable to trade from their premises.
  4. if a rent reduction or rent free period is agreed then consideration could be given to possibly extending forthcoming lease breaks / lease expiries in lieu of rent reductions being paid back.
  5. A government backed loan maybe available to the tenant to help pay back any immediate rent free assistance given
  6. You could also consider delaying forthcoming rent reviews until ‘normality’ has been restored. Suggesting to a tenant that the rent should increase in the current market is likely to be met with hostility particularly from retail and leisure occupiers and is also likely to be difficult to prove.
  7. We would recommend that service charge payments are not altered as services related to the property will still be required. It maybe that cost savings are possible during this period, the benefit of which will ultimately pass to the tenants.  Your managing agents will be able to advise on this.

You should ensure that any changes you agree to are appropriately documented by a side letter and are personal to the current tenant to ensure the benefit is not assignable. Longer term lease variations would require a deed of variation, for example if a tenant agrees to give up a break option in return for a period of reduced rent.

  • If you are making changes to lease arrangements with tenants, please ensure that you are not breaching any banking covenants and discuss with your bank if appropriate.
  • Consideration should be given to the longer term valuation impact (assuming the market returns to normality) of any lease re-gears. There may be situations where it is desirable to obtain vacant possession of the property for longer term redevelopment etc… but please note the Government’s latest announcement regarding forfeiture.
  • If you have loans against your properties, it may be possible to agree suspension of capital repayments with your bank or payment holidays.
  • As a UK Business you may be eligible for Government assistance with grants and government backed loans available, dependent upon your individual circumstances.
  • If the property is left empty due to tenants not being in occupation, consideration needs to be given to security and notifying insurers (typically if vacant for 30 days). We set out more detail in the “property unoccupied” section under Help for Tenants.

Please note the below set out is for information and suggestion purposes only and needs to be tailored to your specific portfolio criteria.  As a team we are available to help and chat through if appropriate.

 


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