Covid 19: Can You Just Not Pay Rent?

Covid-19: Can You Just Not Pay Rent?

New data released by Remit Consulting, gathered from six leading property management companies in the UK, revealed that just 48% of tenants paid on time and in full in March. Just 41% of retail and hospitality tenants paid their rent while 57% of office tenants paid.

This comes as an update to the Coronavirus Act 2020 bans landlords from using their usual rent collection tactics in order to obtain rent from tenants.

Whilst some of the 80,000 tenants which made up the data have been unable to pay their rent due to the Covid-19 crisis, it was noted by researchers that a significant minority of businesses were unwilling to pay and others were both unwilling and unable.

So what does this mean for both businesses and landlords, in the uncertain climate that we currently find ourselves in?

 

Coronavirus Act  2020

The global pandemic is an unprecedented and economically damaging situation that is affecting most businesses in some way or another. The Coronavirus Act is legislation that has been drafted to protect businesses and individuals from economic damage during this time.

Businesses which rent property are likely to struggle over the coming months as business is slow or even non-existent whilst the UK lockdown remains in place. The Coronavirus Act prevents landlords from being able to start eviction proceedings on tenants for any reason, primarily until the 30th of June 2020 (although this may be extended if the Shelter-In-Place order is).

 

Section 82

Section 82 of the bill seeks to temporarily ban the forfeit of commercial leases for non-payment of rent until at least the 30th of June 2020. A further update to the legislation has targeted rent collection tactics, effectively stopping landlords from placing pressure on businesses who do not pay their rent during this time.

The reason for this update is that statutory demand notices and demand orders – both standard procedure for landlords attempting to force payment of rent – can force businesses into insolvency and make it harder for the business or individual to obtain credit in the future.

As a result of new regulations, Landlords are also unable to use Commercial Rent Arrears Recovery (CRAR) unless they are owed more than 90 days of unpaid rent. This protects any commercial business pushed into financial hardship as a direct result of Covid-19.

 

What Can Tenants Do?

If you run a business renting workspace, this legislation allows you to forego paying your rent for the stated time. However, rent is likely to still be owed after this meaning that you will eventually have to pay it in full so simply not settling up is not necessarily the best option.

The best thing for any tenant to do is to discuss their options with their landlord in order to come up with a solution that is mutually beneficial and ensures that you maintain your relationship with your landlord.

You could discuss with your landlord the following options:

  1. Can you make monthly rental payments for the time being, as opposed to quarterly lump sums?
  2. Could you get a moratorium on rent payments for the next few months? If not, could your rental payments during this period be split up and spread over the following six months after things have returned to normal?
  3. Could you get a reduction in rent during the pandemic?
  4. Could your rent be recalculated on a turnover-only basis?
  5. Could your rent be reduced by 50% so it is equally covered by yourself and your landlord during this crisis?

While broaching this subject with your landlord may feel uncomfortable, most landlords do understand that this situation places many tenants in a difficult position. They also understand that it will be more difficult to find a new tenant during this time than to accept slightly different terms for a brief period.

 

Advice For Landlords

It is not only tenants being backed into a difficult position by the coronavirus pandemic. Landlords too are facing disruption to their income and uncertainty about the future. Here are some of the most common concerns and how you could overcome them.

 

If Your Tenant Cannot Pay Rent

The government has stated that you are not required to stop charging rent during this time and it is up to you to decide how best to handle the crisis. If your tenants are having trouble paying rent, the best thing to do is to have a discussion with them about their options.

Landlords are able to apply for a three-month payment holiday on your mortgage. If you secure this holiday and your tenants are unable to pay rent, this is much easier for you to manage financially.

You may also wish to consider accepting a lower rent payment in the short term and arranging a repayment plan to cover the debt later on.

 

Can You Reclaim Your Property?

The Coronavirus Act 2020 restricts you from commencing possession proceedings for any reason until the 30th of June 2020 unless you give your tenants three months’ notice. The government has also warned landlords not to commence repossession proceedings unless they have a very good reason to do so.

All housing possession cases have been suspended for 90 days as of the 27th of March. So, if you had already issued your tenant with a possession notice before 27 March, you still won’t be able to take it to court until the 90-day period is over.

 

What’s Next?

In all cases, whether you are a tenant or landlord, the law is not completely straightforward. We suggest that, if you are having an issue with rent or non-payment of rent, you speak with us at Vyman so that we can assign a solicitor to your case and they can look into your specific arrangement to see how you should best proceed.

We can look at your lease to see if there are any clauses or other legal grounds that justify non-payment of rent at this time. This could include:

  • A ‘force majeure’ clause
  • A frustration of the agreement (meaning that the terms of the agreement cannot be abided by thanks to unforeseen circumstances, of which Covid-19 would be the perfect example)
  • The agreement becoming illegal. Covid-19 regulations make it illegal to operate certain types of business, which could in turn make for a good argument that your obligation to pay rent should be suspended during this time.

Contact us on anup.vyas@vyman.co.uk or sheetal.badiani@vyman.co.uk and we will review your tenancy agreement for £275 + VAT.

We aim to provide a response within two business days and will advise you on your position during the coronavirus pandemic as well as any additional steps pertinent to your situation which we would recommend.

We may also provide you with a letter from us to give to your landlord and assist your negotiations.