Commercial Property Investors Map Route to Normality After Covid
Published 31 March 2021
As we approach what we are promised is an ‘irreversible’ route out of lockdown, the consequences of 12 months of disrupted or even suspended trading amongst occupiers of commercial buildings are still coming home to roost.
Businesses which have had no income for months on end will be struggling to meet all of their financial obligations, whether it’s catching up on VAT payments, national insurance and pensions costs for furloughed staff, or simply paying the rent. For landlords, that means sharing in the pain of their tenants – and considering how to recoup some of those losses and rebuild a sustainable income stream from their investments.
For many, Covid has meant an enforced renegotiation of lease terms, or at the very least allowing rent concessions to avoid tenants defaulting. That is not a question of tearing up the lease; in fact, for most, plotting a course back to a point where the original lease terms will apply has to be the main objective. But there may need to be flexibility in the short term.
Conscious of the potential extra costs of having to relet a building – months with no rent during the void period, legal costs, marketing costs, business rates and so on – many landlords have chosen to offer varied terms to their tenants in an effort to keep them viable and sustainable for the long-term.
This might involve deferring rent payments with payback over an extended period, or even offering a rent-free period in exchange for an extension to the length of the lease. This is especially true where a landlord enjoys a good relationship with a longstanding tenant, or where they know that their building might be difficult to relet in the current climate.
Generally tenants pay their rents quarterly in advance; it’s hard to see how a hospitality business, for example, which has only been able to partially open in May, will be able to stump up three months’ rent on the due date in June. Landlords may have to consider a stepped return to normality, perhaps agreeing monthly rent payments for a period.
A more fundamental solution might be to renegotiate the lease completely, perhaps including an element of turnover rent. It’s likely this will become more common, especially in the retail sphere, allowing landlords to share the pain in the hope of sharing the gain or recovery at some stage.
In this environment, rent reviews are becoming ever more complex. Decisions need to be made on the basis of empirical evidence, of both tenant trading conditions and the local property market. Squeeze too hard as a landlord and you risk being left with a void property which is difficult to relet; give too much away and this could have an impact on the market value of the property. It’s a real tightrope, which requires expert guidance.
Boris Johnson’s roadmap runs for just another three months; commercial property investors will be seeking a longer-term route back to normality which is likely to be measured in years.
Share this story
Continue the Conversation Contact Nick Williams>
Arnolds Keys Blog
29 March 2021
April 1st is a date for tricks and japes – but residential landlords, including those with properties let under an agricultural tenancy, will look more than fools if they ignore... Read more >
19 March 2021
Two high-profile Norwich office buildings have been sold to owner occupiers – further indication of the strong demand for freehold commercial buildings in the city.100 Prince of Wales Road, a... Read more >
16 March 2021
With landlords’ costs and responsibilities seemingly rising all the time, and the Treasury continuing to squeeze their tax situation, it is understandable that some are looking to reduce their expenditure... Read more >
10 March 2021
The 2021 Budget was announced last week, and with it came some much-welcomed news for first-time buyers looking to get on the property ladder as well as those looking to... Read more >