Best Practice For Landlords During The Coronavirus Pandemic

Commercial landlords across the UK are likely to be concerned about the economic impact on their tenants and their property portfolio as a result of the coronavirus pandemic.

The situation is fluid and the other night, perhaps optimistically, Boris Johnson announced that the UK could beat the virus in 12 weeks. In light of this announcement, what can landlords do to prepare themselves and mitigate the impact to their rental income over the next three months (or more)?

Top tips for landlords during the coronavirus outbreak

1. Check your rent roll

A critical source of information, it’s important to review your rent roll at an early stage and ask these sorts of questions:

1. What is the make-up and mix of the rent roll? It is likely that retail and leisure tenants are going to be hardest hit, so prioritise monitoring those tenants;
2. Identify patterns. Who aren’t the best at paying rent? Can you tighten up collecting rent in line with payment terms from those tenants who do pay but pay late to help cash flow? Which tenants are already in debt? Have you let things slip and need to make a choice about whether you call debts in more formally, or consider speaking to a solicitor about what action you can take? The longer debts are allowed to build up the harder it gets to recover 100%.

2. Review your lease arrangements

It’s worth getting your documents out of storage, calling them up on a computer or speaking to your solicitor to consider each lease and the terms of, or associated documents that go with, those leases. Consider:

1. Are your tenants companies or individuals? Companies may be more immediately at risk of insolvency events, so you may want to prioritise debt collection from those tenants before it is too late.
2. Do any of the leases have guarantor provisions? You may be able to call on an individual to pay the rent when the tenant does not.
3. Do you have a rent deposit you can call on? Most modern rent deposits provide for a deposit of somewhere in the region of three months, which might provide a short term fix where a tenant is struggling to pay rent.

3. Talk to your tenants

They’re your source of income, its likely you’ll have a relationship with them and they will probably be just as nervous and uncertain as you are about the future. Can you reasonably provide some assistance, perhaps in the form of:

1. Moving payments from the usual quarter days to monthly arrangements, to assist tenants with cash flow (in the form of a side letter drafted by a property solicitor); or
2. A short term rent deferral (again in the form of an agreement drafted by a solicitor) until the worst effects are behind us?

It’s worth picking up the phone to have an honest discussion about the current circumstances, to help inform your decision making.

4. Talk to your bank

If your rent roll is important for servicing a loan or facility, you may want to contact your bank/bank relationship manager at an early stage to have a discussion about what the bank can do to help you. This isn’t the 2008 financial crisis and banks are generally stronger.

They may have options available, such as payment holidays, for businesses most at risk.

5. Talk to a solicitor

Nelsons have a mixture of transactional and property dispute solicitors who may be able to assist you in reviewing your leases and contractual arrangements with tenants and give you pragmatic and commercial advice about the options open to you to deal with the developing situation.

Our transactional solicitors may, for example, be able to advise you that you have a landlord break option coming up in the near future that might be worth triggering to obtain a vacant unit from a tenant.

Our property litigators may also be able to advise you what formal steps you can take to recover rent, or where you have decided that the risk to your interests are too great and you need to take steps to forfeit the lease and recover the property.

6. Pause

Once you are armed with information and options, it might be worth pausing. The situation is unprecedented and it could be too soon to make decisions about the future of your property portfolio and tenants.

If this is all over in three months you could be left repairing damaged relationships with tenants or empty units and all the associated uncertainty and cost of those units being empty for a sustained period of time, paying business rates and tax.

It could be that you are able to offer tenants time and support so that your properties remain occupied.

Emergency legislation has already come into effect that gives tenants business rates relief, access to cash grants and loans to help ease the burden and free up cash for them to pay rent. It may develop further in the coming days and weeks to include formal rent holidays, or protection from forfeiture.