Last week (23rd March) the government issued a press release to tackle the growing fears amongst commercial renters. These new measures, which are a part of the emergency Coronavirus Bill, state that commercial tenants who cannot pay their rent will be protected from eviction. This ban on eviction will run for 3 months, up to the 30th June. It is expected that many businesses will take a financial hit during the outbreak of COVID-19, landlords included.
Whilst this new amendment will help businesses struggling throughout the outbreak, it does pose several issues for landlords. To help landlords through this difficult period, we’ve decided to analyse the problems they will encounter in the next few months.
How Should I Deal with Rent Moratorium?
With business declining in many industries, tenants may enquire about a further extension for rent payments. It is to be noted that whilst businesses cannot be forced out of their properties, negotiation can still occur.
Landlords should take it upon themselves to open a dialogue with their tenants to reach a reasonable agreement. You will need to find out how much they can afford to pay and how long they wish to delay payment for. If you reach an arrangement, this should be documented thoroughly in writing. This will aid you well if you run into disputes further down the line.
If you can’t reach an agreement, it’s important to remember your rights. Most lease agreements will state that the tenant is only entitled to the suspension of rent if the premise is damaged or destroyed. For this reason, the coronavirus outbreak does not exclude tenants from paying. It is worth consulting your loss of rent insurance agreement for further clarification.
Can a Tenant Terminate a Lease?
Unless specified in the lease agreement, a tenant is not entitled to terminate their lease. The exception to this would be if the business liquidated, in which case they would be able to follow a procedure called a ‘disclaimer’ to relinquish themselves from the lease. It’s worth noting that this process only applies to liquidation, not administration.
There has been a lot of discussion around whether a ‘force majeure’ clause could give tenants the ability to end their contract. This clause permits a party to terminate a contract, due to unforeseen circumstances (such as a natural disaster). If a tenant does try to put forward a force majeure close (if it is included in their contract) they will need to put up a strong legal argument as to why it should apply.
Should I Still Provide Services to My Tenants?
Yes. You are likely to be contractually obliged to provide standard services, such as cleaning and maintenance to common parts of the building. Any additional costs you may have, e.g. supplying hand sanitizer, can be reclaimed under the service charge (although it is always best to check the wording of your agreement.)
How Can I Support My Tenants?
At the end of the day, this will be a difficult period for landlords and tenants alike. First and foremost, you should speak to your tenants to find out how they are physically and financially coping. You should advise them to minimise risks, such as washing hands and self-isolating for 7 days if they are showing symptoms. To help encourage social isolation, you should encourage them to work from home if possible.
In terms of maintaining your properties, a strict cleaning schedule should be adopted. Building areas which come into a lot of physical contacts include door handles, stair rails and lifts. Increase the cleaning frequency of these areas if your tenants are still working in the building.
How Can I Support Myself?
In order to protect your property portfolio and income, you should create a plan for the next 6 months. You will likely take a financial hit over the upcoming months, so your focus should be on staying afloat.
Examine your current methods of communication, advertising and accounting. If you identify areas of improvement, you should seek to improve them over the isolation period, to come out stronger as a business. You may want to consider investing in new software to streamline your processes or tools to assist you with working remotely.
As policies on property management are subject to change, you will need to keep a track of ongoing updates. You can stay in the loop by watching government broadcasts and by following the news online.