Commercial Landlords: What does the extension of the lease forfeiture moratorium mean for them?

We now have confirmation that the moratorium has been further extended to 31 December 2020 meaning commercial landlords remain unable to forfeit commercial leases nor use Commercial Rent Arrears Recovery (CRAR) provisions to enforce payment of rent arrears. By the end of December, this moratorium will have been in place for a period of nine months, the longest stay on commercial evictions in the UK.

While this extension provides an extended lifeline to many commercial tenants it has left landlords with very limited powers of recourse if commercial tenants fall behind in paying their rent. This, coupled with the extension on the moratorium regarding issuing statutory demands or winding up petitions for the same period, leaves commercial landlords with no real options to enforce debts, instead forcing them to look toward guarantees or to draw down from rent deposits.

With the furlough scheme also ending and being replaced with the less generous Job Support Scheme, allowing employers to retain full time employees on a part time basis, with the government topping-up wages payments, subject to certain caps, many businesses are at risk of falling further into financial hardship. Salary payments previously covered by the furlough scheme start to fall back upon the company, at least in part, making meeting their rental obligations even more difficult; however, landlords fear that should they not be able to recover arrears, or prevent them from accruing further, they too could find themselves in financial difficulty.

On 5 November 2020, the Chancellor announced that the furlough scheme will be extended until the end of April 2021. 

Commercial Landlords suffering financial losses

With no tailored financial support given to the commercial landlord market, many landlords are finding their finances are rapidly becoming stretched because of declining rental receipts.

Whilst we are seeing lenders to the commercial property sector be generally supportive of their borrowers’ issues, via the provision of loan payment holidays / debt restructures, in most cases this is simply moving the problem into the future.

Tenants (and landlords) are encouraged by the Government, via a recommended framework, to enter into constructive dialogue in order to reach an agreement to share in the financial difficulties caused by the pandemic. However, the continuing moratorium on action by landlords means that this guidance lacks teeth; landlords look to remain at the mercy of tenants who either can’t or won’t pay for some time to come. 

Expert advice for landlords during Covid-19

With the future for landlords with indebted tenants remaining unclear, taking expert help and advice to help them understand their options will allow for agility and responsiveness when it is time to take decisive action. At Begbies Traynor we have a nationwide team of licensed insolvency practitioners and business turnaround and restructuring experts who can talk through the options available.

This may involve sourcing emergency funding and raising capital to plug any gaps in cash flow or restructuring existing liabilities to ease monthly outgoings. We can also explore the possibility of divesting the company of its less profitable assets, allowing for resources to be directed at the more lucrative elements of your portfolio, while also strengthening the balance sheet.