Alongside protecting residential tenants from eviction during the COVID-19 pandemic, the UK government has also stated that commercial landlords cannot forfeit the lease for non-payment of rent. This measure will be in place until 30th June 2020, but could be extended.
However, during this time many commercial landlords could suffer cashflow issues of their own if tenants are unable to pay their rent on time. If this happens, what options are available to the landlords while the coronavirus measures are in place?
Maintain a dialogue with tenants
Over the coming months, many businesses will be suffering a severe downturn in their income. With the government forcing many companies to shut up shop for the foreseeable future, they could become unable to pay their full rent on time. Some larger brands, with a number of sites, are taking the universal decision to withhold rent during this period and landlords will need to decide how they handle these situations on a case by case basis.
It’s important to keep up communication between yourself and your tenants during this period. For those tenants who have previously paid their rent in full and on time, it may be possible to provide concessions to them and defer rental payments until after the economic crisis subsides.
Landlords should consider their own financial circumstances when agreeing any deferments with their tenants. Under the Coronavirus Act, there is no automatic entitlement for tenants to have a reduction in their rent or take a payment holiday. Landlords, though, may want to support their tenants through this difficult trading period and see the benefits of keeping a tenant over managing an empty property.
There is no guarantee, though, that the missed rent will be paid when the circumstances change. Even when the restrictions on forfeitures are lifted, commercial landlords could be left with empty properties that are difficult to re-let.
However, for some landlords they will rely on the monthly / quarterly cashflow and could be hit hard if tenants simply refuse to pay. By speaking to the tenants, it might be possible for them to pay a smaller amount or switch their quarterly payments to monthly ones.
Support for landlords during the coronavirus crisis
Not all landlords will want to, or be able to, defer rental payments and once government backed grants and loans are available to businesses tenants may have the capacity to pay their rent. Deferring payments until a later date won’t necessarily be beneficial, as it could see them build up large amounts of debt that will still need to be paid eventually.
Landlords won’t be forced to write off payments and all rental and service charges will remain due, with interest accruing on any late payments. At the point that the government restrictions are lifted, commercial landlords will still be able to exercise their forfeiture rights (under the terms of the lease).
This won’t help with any immediate cashflow issues. One option open to commercial landlords if the tenant owes at least 90 days of rent is to carry out a Commercial Rent Arrears Recovery (CRAR).
Commercial rent arrears recovery
Changes being introduced by the government will mean that commercial landlords can now only start the CRAR process where a tenant has arrears of 90 days or more. For clients who are already owed at least 90 days of unpaid rent, we can still carry out the CRAR procedure.
Once a written notice of enforcement has been sent to the tenant, if they fail to make contact or pay the arrears, a certificated enforcement agent can visit the premises and take control of goods up to the value of the rental arrears. This provides security to the landlord and puts an agreement in place that the debt will be paid.
Due to the current travel restrictions, contact with the tenant will first be made by telephone following the notice of enforcement. Our enforcement agents are highly experienced negotiators and will leave no stone unturned when discussing the situation with the tenant.
The CRAR process is provided free of charge to commercial landlords, so there is no risk to yourself by taking this route. Even if the tenant has instigated that they are unable to pay the rent due to the current circumstances, taking further action could make them see the situation differently.
Help for commercial landlords
At The Bailiff Company, we have many years of experience in dealing with commercial leases and can support landlords through this period. You can contact our professional team, who are still working remotely and following social distancing rules in the office, and they can offer guidance as to the best option available to you at the moment.
Our commercial property team can be contacted on 0113 532 8350 or email office@bailiffcompany.co.uk.
More information
How to recover outstanding commercial rent
Collecting utility and service charges with commercial rent arrears