Coronavirus: issues for property owners and occupiers

27 Mar 2020

white town house

The economic issues created by COVID-19 have put landlords and tenants in an uncertain position. Many commercial and residential landlords will be acutely aware of pressures on the cash flow of their tenants and, in turn, of the pressures on their own businesses.

The government, local authorities and mortgage lenders have announced a number of steps to provide flexibility and address immediate property sector financial concerns.

Business rates grants

The government has announced it will provide business rates relief for the year 2020-21. This 100% relief applies to properties wholly or mainly used in the retail, leisure and hospitality sectors where the business is based in England. Properties which have closed as a result of the pandemic will be eligible for the relief. Similar relief is available in respect of nursery businesses, estate agents, letting agencies and bingo halls.

The government has introduced two business rates grant schemes.

  • The first scheme provides retail, leisure and hospitality businesses using property with a rateable value of under £51,000 with a grant of up to £25,000 per property.
  • The second scheme provides small businesses or rural businesses that pay little to no business rates a one-off grant of £10,000.

It is advised that businesses in England and Wales should review the respective local authority website for guidance on the eligibility and application process for a grant. Businesses in Scotland will need to apply via an application form on their local authorities website.

Premises occupied for personal use and car parks and parking spaces will be excluded. Only one grant is permitted per business and further detailed criteria may apply.

Moratorium on landlord’s right to forfeit leases

The Coronavirus Act 2020 is wide ranging and includes a temporary ban on forfeiture of commercial and residential leases for non-payment of rent for just over three months (until 30 June 2020). The consequences of this are:

  • A landlord has no right, during the period ending 30 June, to forfeit a commercial or residential lease for non-payment of rent; and
  • In respect of pre-existing forfeiture proceedings for non-payment of rent, any possession orders granted during that period must not order possession to be given until after 30 June.

The emergency legislation is designed to protect financially vulnerable tenants during this three months and protect against the threat of eviction. At the end of this period, landlords and tenants will be expected to work together to establish an affordable repayment plan, taking into account tenants’ individual circumstances.

Mortgage lender support for homeowners and buy-to-let landlords

Mortgage providers are supporting customers who are experiencing financial issues as a result of COVID-19, this includes giving the option of a payment holiday.

Most banks are offering a mortgage payment holiday and just need customers to self-certify that income has been either directly or indirectly impacted by Covid-19.

Some key points are of the proposal are:

  • A payment holiday will be available to all customers who are up-to-date on their mortgage payments.
  • A payment holiday will be available to all buy-to-let landlords whose tenants have lost income because of the impact of Covid-19. Landlords are expected to pass on this relief to their tenants to ensure that they are supported during this time.
  • Customers should note they will still owe the money where a payment holiday has been granted and interest will still accrue.

Commercial property owners should also be considering their position under any existing loan facility conditions. It is recommended they are in regular dialogue with lenders to provide support and relief from potentially adverse financial implications and breaches of covenants.

Tenants unable or refusing to pay

Businesses in various sectors, including the retail and leisure sectors, are taking or being forced to take the decision not to pay rent due to the Covid-19 closure. Clearly this represents a cash flow and working capital issue for landlords. There is a commercial discussion to be had between tenants and landlords to establish payment holiday terms for tenants. Many larger landlords are providing payment holidays and paring back capital and maintenance work to essentials to manage cashflow as best they can. Landlords do remain legally obligated to ensure properties meet required standard with urgent, essential health and safety repairs needing to be undertaken. Currently there is no specific commercial landlord support package under the government’s Covid-19 response package.

The long-term impact on rental yields is unclear at this stage.