Landlords

Landlord's position weakened further with second reading of new bill

Property Reporter
|
8th June 2020
Gov 777

Property investors are to have their negotiating power further weakened during the crisis as the House of Lords get set to debate a new bill on June 9th.

According to accountants and business advisers, Moore, the new legislation will weaken the negotiating power of property investors, no matter how small the investor and no matter how large or profitable the tenant that has decided not to fully pay their rent.

Measures included in the Corporate Insolvency & Governance Bill include a temporary ban on landlords using winding up petitions between April 27 to June 30, where a tenant company cannot pay its rent bills due to coronavirus. Landlords cannot start recovering rents under the Commercial Rent Arrears Recovery unless they are owed at least 90 days of unpaid rent (the previous minimum was seven days)

Property investors have already had their negotiating power weakened by a temporary ban on their ability to evict corporate tenants who refuse to pay their rent, which came into effect for the period March 25 to June 30.

The next quarter rent date of June 24 is looming and some landlords are concerned that they will receive even less in payments than in March. Only 49.7% of rent due in the UK had been collected within 10 days after the March quarter date compared to a collection average of 69.7% from the last two years on a like-for-like basis.

The Government has set up a working group to help encourage fair and transparent discussions between landlords and corporate tenants over rental payments during the pandemic.

The firm suggests that the Government should consider the following potential measures to help offer some protection to commercial landlords:

· Businesses that reported a turnover of £45m or more last year (the threshold for CLBILS) and have a forecasted free-cash-flow for the next quarter of 5% of sales (according to management accounts) should pay the rent due or a proportion of it (e.g. 50%)

· Commercial landlords with portfolios below a certain size say three commercial properties or fewer, must be paid the rent due or a proportion of it (e.g. 50%) every month. This would protect the many private investor landlords

· The Government could specify a minimum percentage of loans drawn from emergency schemes that should be used to pay rents. This would ensure businesses had the resources to pay the rent due or a proportion of it and would thereby support landlords

Chris Tate, Director at Moore, says: “Protecting small and medium-sized corporate tenants from big landlords during the current crisis is understandable. However, the scales now threaten to tip too far in favour of big multinational corporate tenants against landlords who might be small private investors or pension funds.”

“For some smaller landlords, the suspension of rent payments could put them under acute financial pressure.”

“This latest bill will further incentivise corporate tenants to not pay rent even if they can afford to. The legislation should at least allow landlords to charge a sensible level of interest for the late payment of rents over the last few months if this is not stipulated in the lease.”

“Current protections for corporate tenants not only increase the likelihood landlords will breach their own loan covenants but to cause them to also default on their own loans if they cannot meet interest payments. This makes the cash-flow problem of tenants a problem for lenders, a direct knock-on effect.”

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