Our Lender, Seller, Buyer, Landlord and Tenant clients are being forced to make unexpected decisions in these “unprecedented times”. So, what thought processes are they following, and what decisions are they making as a result of Covid-19?
Pausing, not pulling out of property transactions
I have to say that it’s very interesting (as well as challenging). Although my busy desk before “lockdown” is not as busy, most of my clients are coming back with instructions to “pause” rather than “pull out” (thankfully).
Some clients have chosen to carry on undeterred. They had good deals on the table before Corona became an issue so nothing has changed for them. Though most firms working remotely has added another layer of complexity to this, we’ve managed to get a fair few transactions over the line (we will not let it beat us!).
Those that have “paused” are all confident that once the current restrictions are lifted, it will be business-as-usual and we can pick up where we left off. Of course, those Buyers dependent on mortgage funding will be less confident as many Lenders have retracted mortgage offers because of the global impact of this pandemic. It’s hoped that once this is all over, those Lenders will again be willing to lend (and at reasonable rates, especially given the Bank of England’s recent rate decrease).
The waiting game for non-essential businesses
Clients who operate “non-essential” businesses or services wait with bated breath to hear that they can return to work and resume their services. It makes perfect sense for them to ride out the storm until they are able to start making money again and enable them to pay rent to their Landlords.
A spring (rental) holiday for Landlords and Tenants?
But what about the Landlords who have empty premises which were on the cusp of being let out before the virus took hold? Unfortunately, they continue to lose rental income (paying mortgages if they have them) but safe in the knowledge that they still have their asset which will be available once the pressure eases. In this case, Landlords should speak to their Lender to see if it will allow a three month mortgage payment “holiday” to defer mortgage payments if they are genuinely suffering from a cash flow crisis. Although a Lender does not have to agree to this, it may do so in light of the current conditions. It is more likely to accept this if the Landlord has made payments on time and in full to date. However, Landlords doing this should remember that this holiday may increase the amount of interest they pay overall, and/or their monthly mortgage payments may rise in the longer term.
Tenant clients who have been forced to shut their premises and stop operating their businesses, look to an uncertain future. Tenants may be lucky to have the benefit of business interruption insurance (Tenants should check their policies). Some Landlords have thankfully offered their Tenants a “rent holiday” for now or simply turned a blind eye while rental isn’t paid in full and/or on the due date. Ideally this should be documented by way of a formal rent suspension or rent reduction letter.
Testing times for Tenants
A Tenant cannot simply withhold payment of rent as a result of the impact of the virus. Its Landlord could enforce the terms of the Lease to forfeit as a result of non-payment but thankfully there are Government measures in place to assist - a Tenant that is unable to pay its rent during the next three months will not be forced out of their premises in this three month period. It’s likely that the courts would take a pretty dim view if a Landlord were to forfeit the Lease and would leave the Landlord with empty premises once the restrictions are lifted. However, Landlords will have a right to forfeit and recover any rent arrears again from 1 July 2020 so Tenants should be cautious about not paying their rent at all.
Looking forward post Coronavirus
It’s an unfortunate time but most have decided to weather the storm. Us Brits are a resilient bunch and no doubt will bounce back (hopefully sooner rather than later).
For help or guidance on property matters please contact Shilpa Unarkat s.unarkat@sydneymitchell.co.uk 0808 166 8860
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