DIFFICULT CHOICES FACING BUSINESS OWNERS, TENANTS AND LANDLORDS

This week was a big one for the commercial property market in the UK.

Many commercial landlords routinely collected their quarterly rent. However, due to the current COVID-19 pandemic, many tenants were unable to pay any or all of the rent owed.

Big corporate tenants have been able to dictate favourable terms in renegotiations, often bringing rents down considerably, rather than suspending rents. These heavyweight tenants, while losing millions through declining revenue, are seemingly protected in some instances due to their clout.

This end of the market has equally large landlords, many of which are large national or multinational organisations and investment funds. As such, while a loss of rent does have a considerable impact, the ultimate effect is arguably not as severe on a personal level as it would be to smaller landlords such as SMEs and family-run businesses with individuals who are reliant on rental income for their livelihood. These smaller landlords are unfortunately facing the detrimental effects on their personal lives and mental health of rising costs and declining revenue.

What can we do to help?

We are predominantly concerned with helping individuals, SME business owners, and members of family-run businesses, whether they are tenants or landlords, to navigate these difficult times.

This does not take away from the fact that individual investors are invested in funds that are losing out due to lost rent from an assortment of different tenants who are not paying any or all of their rent at the present time.

Unlike the big corporate tenants who hold equal, if not greater, bargaining power than their landlords, and who have been able to dictate favourable terms in renegotiations, many tenants simply cannot get a break.

What happens if a tenant can’t pay rent right now?

In ordinary circumstances, landlords would have a greater say concerning bringing a lease to an end in the event of non-payment. However, current regulations enacted to protect tenants from eviction have restricted the rights ordinarily available to landlords.

As you will already know, this means that tenants who are unable to pay their rent are afforded greater rights, including protection from forfeiture.

While these rights may be temporary respite for tenants from forfeiture, this is by no means a solution in any meaningful way for tenants or landlords – the problem does not go away.

Communication is key.

Both tenants and landlords need to get together to tackle things swiftly, amicably and head-on rather than sweeping problems under the rug which often only worsen.

Tenants and landlords are faced with incredibly difficult decisions about continuing or ceasing trading in the face of declining demand, or being forced to choose between paying oneself, one’s employees or paying rent or loan repayment.

The implications of such crucial decisions now are manifold.

Many business owners are seeking clarity about whether they should default on their rent or loan payments in order to escape what may otherwise be a pointless exercise of throwing good money after bad.

There is frequent mention of people hoping to cease operations and start up again in a leaner way in the future, without the ball and chain of high rents, bills, salaries or loan repayments. People are seemingly re-examining their needs or strategy in terms of property and operations.

The difficult issue with this is whether defaulting on rent or a loan payments or other obligations could result in personal liability for directors. In addition, and on the other side of the coin, businesses choosing to continue to trade and pay bills, plus take on further liabilities, brings into question insolvency and possible wrongful trading, which can also have ramifications for company directors.

Topics of breaching contracts, renegotiating rent or liabilities, or defaulting on what might seem to be the least pressing obligations, is therefore front and centre for many business owners right now. There are many associated legal considerations in these areas which need careful consideration.

We speak with people about these matters regularly. Thankfully, many situations can be resolved, and are more easily resolved when dealt with promptly. However, things don’t always work out for either or both parties.

As I’m sure you can imagine, we are dealing with a high volume of requests from clients relating to other contractual and dispute-related matters. That said, we would be more than happy to discuss your situation with you.

#bills #insolvency #leases #property #law #businesslaw #disputes