As companies and individuals across the country have seen work grind to a halt and their incomes plummet, measures were put in place to help ease the financial burden caused by the Covid-19 pandemic as part of the emergency Coronavirus Act 2020.
Part of this was to provide tenants with a moratorium should they not be in a position to pay their rent. This meant that landlords were not able to forfeit the leases of those commercial tenants who fell into arrears.
While this move provides a reassuring element of security for tenants, the situation is becoming untenable for many landlords who are faced with having to continue to meet overheads on their properties at the same time as rental income taking a significant hit.
While the original moratorium was intended to cover just the three-month period between April and the end of June, this has been extended several times, meaning that landlords have been powerless to evict non-paying tenants for almost a year. To say that this is piling the pressure onto landlords is an understatement.
Although non-paying tenants are still responsible for repaying the rent they have failed to cover – together with interest – once the pandemic is over, as rent arrears grow, so do concerns as to how much of this money will actually be recoverable once enforcement action is given the green light to resume. With many businesses in a precarious financial position, the likelihood of landlords being able to recoup all of the money lost through non-payment of rent is extremely slim.
It is not only an accumulation of rent arrears which is concerning landlords. Demand for property in some areas has dwindled which has meant landlords facing the choice of cutting the rental asking price, or be left with unoccupied properties. This is being particularly felt in the commercial arena with lessening demand for office space in prime city centre locations, as well as the looming threat of retailers vacating premises due to insolvency or as part of a movement to take their business operations online.
This is an issue which has affected both commercial and residential landlords alike. The residential market is also suffering, as individuals relish the freedom the work from home movement has given them when it comes to where they choose to live. With the ability to work just as well from a house in the suburbs as from an apartment in a prime city centre location, demand for inner city properties is falling.
Options for landlords when it comes to dealing with non-paying tenants have been considerably reduced, however, there are certain actions which can still be taken. If the lease has been secured by a guarantor, landlords may be able to recover the missed rent by calling on the guarantor depending on what the original lease agreement stipulates.
Alternatively, landlords can still serve a statutory demand on a tenant, however, winding-up petitions can not be presented before 31 March 2021, unless landlords can have solid evidence that the inability to pay rent has not been caused due to the Covid-19 crisis,
Any statutory demands served at any point since the Coronavirus Act 2020 can into play can form the basis of a winding up petition once the temporary moratorium on this action is lifted. Landlords should be aware that if the tenant’s company is subsequently wound up, the landlord is highly likely to be classed as an unsecured creditor, meaning returns from the liquidation may be minimal.
If the combination of falling rental income and continuing monthly overheads has caused your property business to fall into a state of financial distress, there are options out there which could help.
A process of restructuring could help ensure your business is operating at in the most effective and cost-effective manner possible. This may take the form of streamlining or simplification which seeks to divest the company of non-profitable channels, allowing vital funds and resources to be diverted to more lucrative areas of the company.
Depending on how your property portfolio is financed, you may be able to explore the possibility of releasing some of this money tied up in assets through a form of asset-based lending. This could instantly improve cash flow, allowing you to cover your outgoings during these turbulent times.
Alternatively, you may wish to consider placing the company in a formal insolvency process such as a Company Voluntary Arrangement (CVA) if you would like to enter into formal negotiations with creditors, or administration if you need some breathing space to formulate a workable plan going forwards.
If the problems caused by the Covid-19 pandemic, however, have taken your property business beyond the point of rescue, you may need to consider liquidation. This can be done through a director-initiated process known as a Creditors’ Voluntary Liquidation (CVL). All company assets will be sold for the benefit of creditors, with any remaining debt written off as part of the process. However, due to the assets likely to be involved when a landlord or property company encounters financial distress, liquidation may not be an option which is considered.
By taking the advice of a licensed insolvency practitioner, you will be able to clearly understand your position and the options which are available to help you not only weather the storm, but emerge as a stable and resilient position.
If you are a landlord operating your business through a limited company, Real Business Rescue can provide expert help and advice. If Covid-19 and the moratorium on lease forfeiture has caused your property business to experience financial problems, Real Business Rescue’s licensed insolvency practitioner are here to help you understand your options. Call today on 0800 644 6080 for immediate help and advice.
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