Everything commercial landlords should know about COVID-19 regulations

COVID-19 has had a huge effect on every industry but there can be no doubt that commercial landlordism has been dealt one of the toughest hands.

While many have talked of the damage towards retail and businesses that require the use of physical locations, what is often forgotten about is the systems and industries connected to these businesses – particularly commercial landlordism. With businesses lacking business and customers, the weight of the financial burden has been passed onto commercial landlords who have seen their powers to take legal action on tenants stymied by government intervention.

As well as landlords servicing the retail industries, it has also impacted upon those who are leasing to hospitality and manufacturing businesses, too. As such, it has never been more important for commercial landlords to be clued up on how they deal with tenancy issues brought on by the pandemic.

The regulations that you need to know

Aside from the regulations that all commercial landlords need to be aware of, the COVID-19 pandemic saw a new raft of measures brought in to try and help tenants in trouble. This started with Section 82 of the Coronavirus Act 2020 which set guidelines on how landlords should respond to tenants in arrears as well as the stopping on non-payment forfeitures.

Essentially, this stops landlords from being able to get back in control of their property from non-paying tenants until at least 25 March 2022 when the current restrictions end. This is also when the Commercial Rent Arrears Recovery (CRAR) process will resume to some level of normalcy.

Currently, due to measures brought in with the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulation 2020, tenants can have arrears lasting up to 554 days as opposed to the one week of allowance before the pandemic hit.

Statutory demands (when a formal demand is written to a debtor) and winding up petitions (when legal action is taken by the creditor against the debtor) were also curtailed under the current legislation. While the rulings on statutory demands have now been lifted as of October 2021, winding up-petitions remain unavailable as an option until 31 March 2022.

One key thing has shifted in this process is that the level of debt required for such action to be taken has changed. Previously, the debt had to be above just £750 to be actionable. Now, it needs to be over £10,000. Stay of possession has also been resumed under the current regulations. However, the legal quagmires presented here mean that you need to engage with experienced legal representatives – such as our Commercial Property Team at Foys – should you want to examine how you can take action against a tenant.

The Government also issued a code of practice to be followed regarding commercial tenants and landlord relations which has now been replaced with a newer version as of November 2021. The code is based on the principles of “fairness, affordability, and viability”. The aim is to introduce a new arbitration process that is legally bound to help settle issues of rent debt following on from March 2022 as part of the new Commercial Rent (Coronavirus) Bill.

Commercial landlords left bearing the front

Currently, there’s not a lot that commercial landlords can do to alleviate this burden. Aside from the measures mentioned above, which will be rare due to many not having a tenant with arrears sitting at above £10,000 but rather many tenants sitting under that amount, one temporary measure would be to dip into rent depoists. As long as this is within the terms of the lease, it is possible for a landlord to do this.

Market valuation on retail properties is down so while selling a property may be a solution, do keep in mind that you are likely to be selling under value. An alternative solution is to re-purpose your spaces – particularly any vacant office spaces – to serviced units for freelancers and small businesses to rent out in a shared office.

This requires you to contract or employ some basic staff for the front desk, janitorial and custodial work, but it has proven to be a fruitful endeavour for many who have taken it up. With so many people still working from home, but pining for any opportunity to get out of their house, many will look to this as their way to have a workspace away from their private life and the many distractions it offers.

Then there’s the opportunity to change the type of lease you are offering. You could choose to maintain it as a commercial lease but change it so that the amount paid per month is dependent on the tenant’s turnover. This means that if your tenant performs poorly, you can at least expect a set amount a month that you can always budget for while offering them a chance to recover.

On the flip side, a tenant performing well can offer returns exceeding the rent you would have expected from a standard lease. With the tenant being profitable, they are unlikely to complain either knowing that they will not be financially punished in future for any bad periods.

Lastly, there is the possibility of – if possible – converting the property into residential housing. As residential housing is never a market lacking in potential tenants, you have the ability to claw back some of your lost revenue over time from the struggles of your commercial operations.

Strained relations between commercial tenants and landlords

There can be no doubt that the current situation has further exposed an already weak point of commercial landlordism: relations to tenants. This has been an area that has already needed dramatic improvement. The problem even led to a new representative body for commercial tenants – the Commercial Tenants Association (CTA) – being set up in early 2021. A survey by the CTA found that about 75% of tenant respondents were not satisfied with the treatment they received from their landlords.

Check out our article on creating better relationships between landlords and commercial tenants here

The pandemic has only served to worsen this issue which is probably why the government has leaned so heavily in the new guidelines on the principle of fostering better relations between the two groups. As with any negative situation, there is always the potentiality to turn it into a positive one. And, in this case, perhaps that is the possibility of better tenant and landlord relations in the future.

Open and honest conversations between both parties can surely not only help the two reach conclusions and agreements that suit either participant, but can avoid expensive legal routes, too. Nevertheless, a rift remains on how both parties want the situation to go. A government survey showed that 50% of landlords and tenants believed that their counterpart was not following the spirit of the guidelines.

While the survey showed that most landlords wanted the protective measures to end sooner than March 2022, this was the least preferred option (from a total of six options) by tenants. Conversely, most tenants wanted there to be a binding non-judicial adjudication process and this was the least preferred option by landlords – again indicating the schism between the two.

The government has made its decision and the way forward should be a more collaborative approach to solve any issues surrounding arrears. However, should you suspect that your tenant is not being completely honest about their financial picture, you may want to take further action.

Foys is here to help guide you through Covid and Landlord issues

It’s going to take a lot of deft legal acumen and experience to navgiate these uncharted waters as we approach the March 2022 date which will undoubtedly unlock a flurry of legal action. It’s why you need a great commercial solicitor on your side such as Foys.

We have acted for landlords and management companies in all sorts of cases relating to leases and property disputes for over 50 years now. While the COVID-19 pandemic has presented challenges to our team as we also come to grips with so many temporary (and, now, permanent) changes to the law, we have taken the negative and honed our skills to produce positive outcomes for our clients.

It has, arguably, never been more important to have an experienced team of commercial property solicitors on your side when dealing with these issues. With the courts facing delays, you’re going to want to be ready to go with any legal challenges come March 2022.

At Foys, we don’t just get our clients the decisions and outcomes in their favour, we also help them understand the issues at hand so they know what to do going forward. We have always prospered and adapted as the legal landscape changes and our can-do attitude is well-suited to commercial landlords with the same outlook.

Our legal advice is always on point, actionable and accurate on all matters relating to commercial properties and conveyancing. And you can get a taste of what you can expect with a FREE initial consultation with one of our Commercial Property Team to discuss your legal concerns. So get in touch with our team today on 01302 327136 or by email us at enquiries@foys.co.uk, alternatively, complete our Contact Form.

Enquire About Our Services Today

Book an initial FREE consultation or to find out more about our personal and business law services

Call the office nearest to you and speak to one of our professional specialists or fill out the form below