On 19 June 2020, the U.K. government enacted a code of practice for commercial property relationships to help ease the financial burden of businesses closed because of the pandemic.
In the past 18 months, the government has also introduced legislation that expands tenant protections to:
• prevent landlords and commercial property owners from evicting tenants for failure to pay rent;
• restrict how landlords can recover rental arrears, preventing the seizure of goods;
• limit the landlords’ ability to serve demands
Today, landlords are expected to enter discussions with commercial tenants to find equitable ways to share the costs of doing business during the pandemic. While restrictions of businesses operating are starting to lift, the government also extended these protections until 25 March 2022.
In compliance with these regulations, what then can landlords and property owners do to protect their interests?
Enter Discussions with Tenants Early
If a tenant is showing signs of having financial difficulty, it’s best to discuss payment options as early as possible. Doing so can not only help you plan for your cash flow but will also help a struggling business to plan how to get back on its feet and resume paying rent.
While you could do a physical check on the store/business location to see if operations are ongoing, there are other signs to see if a business is having difficulties. Late rent payments are a sure sign, or asking for extensions, or paying rent through different sources, like switching accounts.
If you detect these early signs of financial difficulty, then it may be time to have a frank discussion with your tenant about their ability to pay rent, and to come to an agreement as recommended by the Code.
Enter into Agreements
From April to May 2021, the government surveyed both landlords and tenants about how these discussions turned out. For landlords and tenants who entered into agreements, most of these involved one or more of the following:
• a longer period to pay off the rent owed
• a reduction of rent for the duration of the lease
• writing off a portion of the arrears, mutually agreed upon by the landlord and tenant
While these concessions may seem disadvantageous, to many landlords, even a partial recovery of their losses are preferable to not having a tenant at all or holding out for a chance for the tenant’s business to recover and pay off their arrears in the future.
Make a Plan and Communicate
As a landlord trying to earn a living during a pandemic, it would be best to start proactively approaching tenants regarding their rent and their ability to pay. This allows them to communicate to you about any concerns, as they are no doubt also aware of the temporary protections granted by the government.
Providing realistic expectations for one another allows both tenant and landlord to accept the situation and work together for an equitable outcome.
Limitations to the Government Protections
It is important to note that the government has also made a distinction about which businesses are protected by these measures. In a policy statement in August 2021, the government explicitly stated that “tenants who have not been affected by closures and who have the means to pay, should pay.”
In addition, the government has also made it clear that the protections only apply to ringfenced arrears, which apply to those accrued from March 2020 until business restrictions are lifted from the tenant’s industry.
MS Webb & Co. offers efficient rent recovery services all around England and Wales. If you have any inquiries, check our website to know how you can recover overdue rent and protect your assets and interests.
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