Managing your Property Costs

The Coronavirus has had a significant impact on businesses across the UK over the last few weeks regardless of sector & location, but those that have been forced to close their doors and shut down their businesses are obviously bearing the brunt of this.

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Cash flow management is key to get through this and given property related costs are generally the second or third highest cost in any business, consideration to managing rents, business rates and service charges over the coming months is very important.

We have now passed the March Quarter Rent Day (25th March 2020) and many businesses have either not paid quarterly rent due or only paid a partial amount. Some Landlords have openly supported Tenants offering a 3 month rent free period, whilst others have refused to offer any help in the form of either a rent free period or rent deferment/holiday, others are open to ongoing review of the situation in the short term.

Continual review with open and honest dialogue between Landlord & Tenant is recommended to help both sides get through this period and hopefully come out the other end with an unscathed or improved relationship!

In this blog, I will cover some of the recent property related legislation changes and an overview of the reliefs and grants being provided by the Government based on property Rateable Values.

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LEGISLATION CHANGE – TENANT RELIEF FROM FOREFEITURE

Commercial tenants who cannot pay their rent because of COVID-19 will be protected from eviction. This means no business will risk automatically forfeiting their lease and be forced out of their premises if they miss a rent payment up until 30th June 2020 and the government may extend this period if needed.

But what does this mean?

In short, this essentially provides a Tenant with a 3 month deferment of any rent due on the March Quarter or monthly until the end of June on the basis the Landlord does not have the ability to forfeit the lease for non-payment until the end of June.

However it’s important to note that this protection does not provide a rent free period or rent holiday and rent owed will need to be paid up to date by the 1st July 2020 to avoid falling foul of the established legal position on rent after the short term change is lifted.

Whilst this is an important piece of legislation to be aware of and shifts the balance in favour of the Tenant. I’d strongly recommend open and frequent communication between Landlord & Tenant to seek a fair & reasonable compromise.

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GOVERNMENT SUPPORT

As widely publicised, the government has pledged the following assistance:

• A 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England from April 2020.
• Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief.
• Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000.

This support is proposed to be automatically applied by local authorities, however we understand some authorities are requesting eligible businesses apply for the grant so there is some confusion.

Also, business rate payers may not be sure whether they’re eligible for the support offered or when the funding will be provided. There are also some grey areas around property uses and how they have been classified that may need to be considered by some businesses.

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BUSINESS RATES

The government have been quick to support businesses who occupy small, low value premises and all businesses in the retail, leisure & hospitality sector, but this still leaves the vast majority of premises in other sectors untouched with 100% of the rates due remaining payable.

This may change, but businesses who are protecting their cash flow may be well advised to consider their options in relation to business rates in the following ways:

• Withhold any payment in the short term on the basis the Government may be the better creditor to leave waiting.
• Investigate short term empty rates relief or part occupation relief where offices/warehouses and other commercial buildings are shut or partially closed as a result of the Coronavirus.
• Material Change in Circumstances appeal/relief where premises still remain in full use but the impact of the Coronavirus is having a material impact on the value of the premises for the rate payer.

I’d recommend that businesses who are concerned about cash flow take steps to defer payment of their business rates bills over the coming months and investigate the steps raised above. Most occupiers should be on monthly payment terms with the next payment due early in April and some of these measures cannot be backdated so should be actioned without delay.

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NEXT STEPS

If you’re concerned about the effects of the Coronavirus on your business and cash flow over the next few months I’d strongly urge a rapid and proactive approach with Landlords and Local Authorities to explore the options and seek to negotiate a suitable compromise to help all sides get through this.

Simply not making payments on time without providing any advance warning is unlikely to assist in reaching a suitable compromise.