Whilst the government has shown landlords support, both commercial and residential landlords, laws currently being passed are putting both on the back foot, by preventing them from pursuing rent arrears claims and evictions.
Covid-19 is causing widespread devastation across the whole country as tens of thousands of people die earlier than they should, and a nationwide lockdown has an impact on the economy that will take years to overcome. The coronavirus pandemic is going to be the biggest post-war crisis our country has seen, not withstanding its effect on the world-wide economy – there is no doubt we will all be the poorer as a result of this.
Firms are in danger of going out of business, and doubtless many will; families are in mourning, thousands will lose their jobs and landlords are facing unprecedented challenges – residential landlords are trying desperately to balance their desire to show human compassion while covering their costs, and commercial landlords want to help their business tenants survive, while balancing this with their own cash flow problems.
Some landlords have really drawn the short straw: in particular those who were in the process of evicting for legacy rent arrears prior to the lock-down, and they now find themselves housing tenants for free, long-term – the eviction bans, it seems, are constantly extended. Other landlords fear that their tenants are avoiding paying rent, even when they could afford to do so.
There’s a compromise to be had somewhere: between the two opposing camps of those landlords who want to stop the worst cases of deliberate rent non-payment of rent, those tenants taking advantage of the situation, and the government’s actions to support tenants, informed by tenants and tenant lobbying groups.
Commercial landlords in particular are worried about the new laws on rent collections, with a bill set to pass through the House of Lords which will further weaken their position: these landlords could soon be blocked from perusing business rent arrears for at least 90-days
The Corporate Insolvency & Governance Bill includes in its rubric a temporary ban on landlords using winding up petitions where a tenant company cannot pay its rent bills due to the coronavirus. It prevents landlords from recovering rents, unless they are overdue by at least 90 days. Ordinarily, commercial landlords can pursue rents arrears after seven days.
Commercial landlords, and this includes many small private investors, argue that this new legislation tips the balance of power too far in favour of the tenant. And this, coupled with the temporary ban on their ability to evict corporate tenants, who refuse to pay their rent, will overly weaken the landlord’s negotiating position when it comes to valuations and lease renewals.
With a new quarter’s rent due on the June 24th quarter day, many commercial landlords are getting very concerned that they will receive even less in rent payments than they did in March. It has been estimated that only around 50% of the rent due from businesses in the UK had been collected 10 days after the March quarter deadline. This compares to around 70% in a normal year.
Landlords fear that this latest bill will incentivise corporate tenants to not pay rent even if they can afford to, so for many smaller landlord investors, and some of the struggling mega corporates, the suspension of rent payments, it is argued, could push them over the edge into insolvency.
Residential landlords appreciated that the Ministry of Housing, Communities and Local Government recognised early on the vital role they play in supporting their own tenants through the crisis by announcing a series of measures to help both landlord and tenants, including:
- Changes to Local Housing Allowance rates to cover 30 per cent of market rents, helping tenants on low incomes
- A commitment to cover up to 80 per cent of wages of furloughed workers, a critically important decision, enabling more tenants to continue to pay their rent and their bills during the outbreak. The self-employed also qualify for payments of up to £2,500
- An extension of
the mortgage ‘holiday’, initially offered to homeowners to buy
to let, allowing landlords (although obviously only those with
mortgages) to let tenants defer
- The deferral of VAT payments, meaning no business had to pay any VAT in March, April or May An extension to the notification period for repossessions to three months, with courts suspending all possession hearings for 90 days
- Loosening of the rules around Right to Rent checks, allowing documents to be submitted electronically.
These concessions are all in addition to the loans, grants and rates reliefs announced in the budget. However, many private residential landlords fail to benefit from much of this. Those without mortgages still need to cover their costs and many rely on their rental income to fund their living.
Student landlords in particular are struggling when they find their tenants have gone home to live with their families, as the universities and colleges closed down. This could leave landlords with council tax bills to pay, while many of their tenants think they don’t have top pay rent, even when they are contracted to do so, and are refusing payments. Not only does this seriously compromise the student landlords’ position, they have perhaps even greater worries for next term, for the possible dramatic reduction in foreign student numbers. It could mean that many student landlords will leave the sector for good.
The National Residential Landlords Association (NRLA) is making representations to government for extra help for struggling residential landlords left with empty homes, and it is calling for landlords of houses in multiple occupation to be given council tax relief.