On Monday 23rd March 2020, Boris Johnson placed the UK on a 3-week lockdown. As a result, working in the office is simply not an option for most of us, unless you are a “key worker”.
The impact of Covid-19 is therefore going to be felt by virtually every UK business, irrespective of the sector it operates within.
Some businesses have already been brought to a standstill particularly those in the non-food retail, travel, events and hospitality sectors. Others especially in the social media and I-T sectors have fared better. But sooner or later, we will all feel some pain, that much seems certain.
Contrary to some reports though, there is no legal requirement forcing landlords to offer concessions to tenants and it is far from clear whether business rates relief will apply to office premises.
As ever, the key to getting through this crisis will be cash management. As we know, the UK Government is introducing a range of support measures including generous business rates relief for the retail, leisure and hospitality sectors. But what about businesses like yours that rent office space. Is there any Government assistance for you and is there anything you can do to conserve your cash over the next 12 months without jeopardising the relationship you have with your landlord?
Here are some initial thoughts.
Business Rates Reliefs – current status
Following his Budget on 11 March, the Chancellor recently announced that Retail Relief would extend to all occupied retail, leisure and hospitality properties in the year 2020/21. There will be no rateable value limit on this relief. The relief is available providing the business premises are occupied wholly or mainly for specific uses including shops, restaurants, cafes, nightclubs, theatres, gyms and hotels.
Initially, it was announced that those sectors not eligible for relief would include financial services, estate agents, medical and professional services. Yesterday Rishi Sunak confirmed that he was extending the relief to certain professional services, estate and letting agencies and bookmakers. All will benefit from a one-year business rates holiday. In most cases, this will represent the equivalent of a rent, service charge and business rates holiday for between two to three months.
Business Rates Reliefs – the immediate future
According to our rating consultant Paul Giness, if your business is not officially eligible for relief right now all is not necessarily lost.
For example, it is possible that there may still be strategies to consider if your property was already vacant prior to the Coronavirus outbreak, and not covered by the Retail Relief.
There might also be scope to appeal properties that do not benefit from the exemption, as the effects of Coronavirus may constitute grounds for appealing the rateable value. Furthermore, if locations are mothballed or become partially vacant, there could be scope for empty rates relief of up to six months, depending on the property type.
If you are in any doubt in relation to your particular use or circumstances, you should seek advice from your local authority and/or one of our Rating consultants.
Rent Free Concessions - current status
On Monday 23rd March, the UK Government said it would protect commercial tenants from eviction or forfeiture if they defaulted on their rent, due to Coronavirus. The protection will cover the next 3 months, at least.
This move has prompted some landlords of retail and leisure property to voluntarily offer their tenants a 3 months rent-free period.
Contrary to some reports, that there is no legal requirement for landlords to offer concessions to their tenants. The legislation is not in other words going to force landlords to write off the rent and other sums that are due to them. Instead, these sums will remain a liability for their tenants. Landlords are simply being prevented from forfeiting leases during the ‘Period’ if their tenants are unable to pay what is due.
In response, some tenants have decided to withhold their March quarter rent payments to aid their own cashflow. Primark are a leading example of this. They were due to pay £33 million worth of rent on their estate of 110 leasehold properties yesterday. Also, it was reported just this morning that the landlord of Manchester’s Trafford Centre received just 29% of its March quarter’s rent.
The measures to protect commercial tenants are set out in the Coronavirus Bill which was rushed through Parliament in the last few days and became law late last night (Wednesday 25 March). The emergency legislation covers a plethora of issues including wide-ranging powers for government ministers, councils, police, health professionals and coroners.
The key provision as far as commercial tenants are concerned is the suspension of landlords’ forfeiture rights until at least 30 June 2020 (the ‘Period’) which of course for many, will capture the 24 June rent quarter day. The ‘Period’ can be extended on one or more occasions, if needed.
Note that the legislation implies that the term ‘rent’ will include all expenses due under a lease. In other words, it should cover service charges and building insurance.
Conclusions – for now ! (Thursday 26th March)
As far as business rates relief is concerned, if you are not eligible for relief right now, our advice is to sit tight and await further announcements. If you are eligible, visit your local authority’s website and start the process to register for the relief.
In terms of rent and service charge payments, you have the option not to pay rent demands up until 30 June 2020. But please bear in mind that the money due to the landlord will not be written off and at some stage you will need to agree a re-payment plan with the landlord.
The re-payment plan is likely to form part of a lease renewal, break option surrender or rent review negotiation, depending on where you are in the term of your lease and what provisions already exist for uplifts and so on.
Before engaging with your landlord, please read my note tomorrow which will set out the options and potential strategies for such a negotiation.
Until then, stay safe.
If you have any questions or need advice in relation to a specific lease or building, let us know by contacting Martyn Markland by email at mm@tenantag.co.uk.