It’s fair to say that lockdown has created immediate and longer term difficulties for commercial landlords and business tenants. Commercial landlords, across all sectors have suddenly been faced with tenants who cannot afford or who have simply refused to pay their rent and service charges under their leases. This has left landlords with suddenly less income and in some cases, a landlord that can no longer meet repayments on their mortgages.
For SMEs around the country, offices are now under-utilised with most employees working from home, where feasible. In an effort to try and limit the economic impact of the imposed lockdown caused by the Coronavirus pandemic, the Government has introduced a package of tenant support measures including:
- The Coronavirus Act 2020, to prevent any business being forced out of their premises if they miss a payment until 30 June 2020. The Government has an option to extend this if needed.
- Temporarily banning the use of statutory demands (between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June 2020, where a company cannot pay its bills due to Coronavirus.
- Laying secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery unless they are owed 90 days of unpaid rent.
- A stay of possession proceedings for 90 days from 27 March 2020 which applies to commercial premises.
These measures aren’t a rent payment holiday but a lifeline to tenants who would otherwise face administration despite having an otherwise viable business in many cases. This is assessed on each tenant’s situation where rent is still owed, so tenants who are able to pay some or all of their rent are expected to do so.
Eligible commercial tenants can also access numerous financial support packages including a 12 month business rates payment holiday, “CBILs”, Government backed “bounce back” loans for SMEs, small business grants funds, retail, hospitality and leisure grants and local authority discretionary grants.
The Chancellor of the Exchequer has publicly committed to supporting the commercial rental sector as it deals with the disruption caused by the coronavirus outbreak; continuing to work with lenders to provide flexible support to commercial landlords, including payment holidays and restructuring facilities – support they can extend to their tenants.
Despite this help times remain tough as business braves the new normal. Analysts predict we are entering the worst recession for years with possibly an 11.5% shrinkage in the economy predicted over the next year and a period of prolonged recovery.
As it is difficult to judge how long social distancing measures will remain in place, tenants will have to adapt their premises to comply, which will almost certainly mean re-configuring office space and operating reduced staff levels so manageable numbers are in the premises at any one time.
Many tenants will naturally take stock and consider whether they need their premises longer term. In this case, ensure to review your business lease to check there’s the flexibility to exit the agreement , through exercising a break option; assigning or subletting the premises or negotiating a lease surrender with the landlord.
If none of these options are available or you want to retain occupation, but the business is struggling financially, try and negotiate rent concessions with the landlord, such as rent payment holidays, temporary rent reductions or other concessions. Keep communicating with the landlord and discuss the various options available to avoid potential disputes and the threat of litigation further down the line.
This transparency between the parties is being actively encouraged by the Government. Businesses and landlords are soon set to benefit from a new code of practice, to provide them with clarity and reassurance over rent payments during the coronavirus pandemic and guidance on rent arrears payments. Commercial lenders will be encouraged to continue to show flexibility towards businesses and to work together to protect viable businesses
Whatever the new normal looks like for your business and the decision you make on the future of your workplace, it’s key for all parties to co-operate and to work collaboratively – that way no one party shoulders the full burden of payment, and landlords and tenants have a chance of recovering through these unprecedented times.