Much has been written about the plight of commercial tenants during the coronavirus pandemic, and rightly so. If the economy is to recover once the virus is under control, tenants’ businesses will have to be viable and start trading again, despite long periods of reduced or no trading.
The position of commercial landlords is mentioned less but is of equal importance. The sole source of income for landlords is rent and if this has not been paid, or paid at a reduced rate, then landlords are just as vulnerable to the failure of their businesses as their tenants. Commitments to lenders have to be fulfilled with potentially high costs and uncertainty associated with refinancing loans.
Some large retail landlords collected as little as 25% of all rent due in December 2020.
Although there has been no suspension of a tenant’s legal obligation to pay rent, legislative measures put in place during the pandemic have had a similar effect, including:
- Landlords cannot currently forfeit a lease for non-payment of rent
- No winding up petition can currently be presented against a tenant company.
- The remedy of Commercial Rent Arrears Recovery has been limited, with a minimum of 366 days of rent arrears currently required before a landlord can seize a tenant’s goods to the value of the
Landlords have other options for recovery of rent, including pursuing lease guarantors, bringing debt recovery proceedings and drawing on rent deposits. Some government assistance is available for businesses, including landlords, in the form of loans.
The government has issued a Code of Practice for commercial property relationships during the pandemic, which will apply until April 2021. This requires landlords and tenants to act collaboratively.
At some point, tenant protection measures will have to come to an end and landlords need to make decisions on whether to bring forfeiture proceedings against tenants with substantial rent arrears and courts may take a dim view of landlords who have not co-operated with tenants.
There is little doubt that, following the pandemic, there will be wholesale changes to the way space is used, particularly retail and office space.
Landlords such as pension funds, local authorities and development companies will be key to the regeneration and repurposing of this space. Former retail spaces could be repurposed for co-working, residential, consumer hub and life sciences use, in partnership with local authorities and with government assistance.
Landlords will be looking out for sustainable, future-proof investment opportunities.
When the end is in sight and tenant protection measures are eased, landlords must be able to make the best use of their properties in order to be able to contribute to ‘building back better’ and giving us all hope of a brighter future.
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