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Rent Payments for Commercial Tenants: Covid-19

An announcement by the Government confirms commercial tenants are now protected from eviction if they do not pay their rent due to coronavirus (covid-19).

The announcement could be seen to be late because it was published on the Government website two days prior to the March quarter date. Although, perhaps early too because solvent tenants would actually be in a position to pay now (they have been accruing normal takings until very recently) and it will likely be the next quarter date in June when things will feel especially tight.

We have seen and been involved with a high level of correspondence on this topic during the past few days.

The Coronavirus Act has now received Royal Assent. Landlords will need to refrain from taking steps not least because they and their lenders will not want to lose their rental streams nor find themselves taking action now which will not hold up in court.

The new announcement regarding rent payments

Chancellor of the Exchequer, Rishi Sunak MP, said: “we are taking steps to change the law so that no company can be forced out of its premises due to loss of income”.

The Government has said that the new measures mean no business will be forced out of their premises if they miss a rent payment…

It goes on to say that the rent will still be due, ‘following’ that 3 month period.  Rent will not be extinguished – this will just allow some breathing space to enable tenants to miss the rent payment for now and to pay later, although it is unclear exactly when ‘later’ is.

The Coronavirus Act (s82, Part 1) confirms the ‘relevant period’ this protection will run is until 30 June 2020 – or such later date as the Government so decides.

The question of what ‘rent’ is for these purposes is stated to be ‘any sum a tenant is liable to pay under a relevant business tenancy’.

Tenants are now writing letters telling their landlords they will not pay – with reference to the March quarter date. Landlords are writing back to tell them that they will need to pay.

Some tenants will have already paid or will pay now and then have further conversations in June.  The question will be:  what are landlords realistically likely to do about this and how?

Everyone seems to be grappling with the information available in order to understand how their business will be affected.

Implications for investors

This measure is obviously designed to be a potential quick fix for tenants to immediately free up some liquidity as opposed to having to spend hours applying to the Government for grants or loans.

However, the measures we have seen do not seem to yet address the concerns of landlords who equally have creditors and others to pay. Landlords are heavily reliant upon rental receipts.

It is hoped that the government will address this and that lenders will ensure landlords will be able to receive the same degree of forbearance as tenant occupiers.  The government said it will monitor the impact on commercial landlords’ cash flow and ‘continues to be in dialogue with them’.

The lack of full information and blanket protection for landlords is very concerning for investors and presumably also for lenders. There are indications that at the very least the mainstream banks will offer some degree of protection to borrowers.

The fast moving nature of these announcements serve to raise further questions such as ‘will unscrupulous landlords still unlawfully re-enter vacant premises and force tenants to apply for relief in court?’, and ‘how can it be proven that tenants fit into the category of being affected?’.

Despite the current crisis there are still numerous businesses able to run – some extremely more profitably in these circumstances. As always there will be grey areas. However, given that the announcement came one day earlier than the ‘lockdown’, it should now be clearer as to which businesses will be affected during the March quarter.

Going forwards

As a property lawyer, it was sufficiently unnerving during the previous financial crash to hear an ‘unprecedented use of the word unprecedented’. This new health issue and the impact of it upon our lives is unchartered territory.  It is hoped we can quickly see an end to it, leaving ourselves and our valued clients and the people they do business with, fully intact and in good health financially, as well as physically.

Best advice is to keep constructively communicating and to reach compromises and agreements wherever possible. Everyone is currently suffering from the same issue, so let’s support each other as best we can.

There is currently no golden bullet to solve this issue and it is clear the Government is trying to do what it can.

It could be premature to act too early. The high levels of support being offered to markets are unprecedented and will take time to work through. It is wise for everyone to refrain from making knee jerk decisions or jumping to early conclusions wherever possible, until the actual impact is understood.

According to some leading economic commentators, it is no surprise to hear that the economy is now expected to suffer a short sharp shock this quarter which should hopefully then recover in a rapid and equally unprecedented manner.

Whether you are a landlord or a tenant, if you would like more information on any of the above, please contact a member of our Commercial Property team today. Our priority as always is the best for you and your business.

The Government announcement can be found here, with further reading here and legislation here.

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Marc Warren

Commercial Property
0113 322 2844
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Marc Warren Blacks Solicitors LLP