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Real Estate Guidance Note for businesses affected by the coronavirus crisis

Real Estate Guidance Note for businesses affected by the coronavirus crisis

Published: 19/03/2020

These are worrying times for us all, both in business and at home. Our first priorities should be for our health, but there are significant economic uncertainties to which people are also seeking answers.

We offer some high level comments and guidance, in these unprecedented and fast moving times, aimed particularly at small businesses who are impacted by cash flow problems.
We recognise that problems may be exacerbated by the imminent March Quarter Day (25th March) when many businesses will be expected to make the quarterly rent payment in advance.

Government Support

The Chancellor has acted promptly on 17th March to provide business support, and further details are now emerging. We will aim to update this note further as and when we can. To summarise so far:

All businesses who were previously benefiting from Small Business Relief, that is a business who is occupying a single property with a rateable value below £15,000 and where that is the only place of business, will be entitled to a cash grant of £10,000.

https://www.gov.uk/apply-for-business-rate-relief/small-business-rate-relief

This grant will be accessed through the local authority and we are told we will receive further details from them in April.

For slightly larger occupiers in the retail, leisure and hospitality sectors, with a rateable value between £15,000 and £51,000, you will be entitled to a cash grant of £25,000.

We have also yet to understand how it will apply to companies with multiple properties, say 4 properties at £30,000RV. We might expect that there would be only one grant per company, but it is possible that it may apply per rated property. Again, we are told that it will be accessed through the local authority with details being advised in April.

Finally, as has been widely reported in the press, for all properties in the retail, leisure and hospitality sectors there will be a 100% rates holiday for 12 months from 1st April. No rates payable, providing that you are the retailer/operator. Any Rates bills for 2020/2021 will be cancelled if you are in the relevant sectors.
NB. We expect that this will initially be administered by reference to the use that the Valuation Office classifies for your premises (Shop & Premises, Restaurant & Premises, etc). If you are trading from premises classed as, say, Office & Premises, then complications may arise and you would be wise to seek advice.

You can check your rateable value and the defined rating use by entering your property postcode here:

Check your Rateable Value Here

To qualify for these reliefs and grants you will have to be a rate-payer. Small businesses in serviced offices or on inclusive rents will not qualify. We might hope for further support for these businesses in time.

Takeaways and Deliveries 

The other major announcement to date is that permitted development rights have been introduced to immediately allow pubs, restaurants and other hospitality venues previously trading with A3 planning consent to allow takeaway and deliveries for a period of at least 12 months. This might offer businesses an opportunity to continue to service customers whilst social isolation is ongoing.

You should notify the local authority of the date that you start to take advantage of this change and the 12 months will be measured from that date.

Landlords & Owner Occupiers


If you are landlord or owner of property with a mortgage, the Chancellor has advised that mortgage lenders will be providing a minimum three month mortgage holiday. Details to be advised.

If your property is currently vacant and to let it is not apparent that you are entitled to benefit from any of the above business rates reliefs. It will be necessary to consider whether other options might exist to mitigate business rates liabilities.

Commercial Rents

The situation with commercial rent liability, which for a lot of people will fall due on 25th March, is complex, and case-by-case advice may be necessary.
In summary:

  • A lease is a contract and, unless the government introduces radical controls in this area, then existing legislation will apply. [Note, the Housing Minister further announced plans to prevent eviction in the residential sector on 18th March. Perhaps similar rules may be applied to business premises for a period of time.]
  • Rent is technically due whether it is demanded or not.
  • Leases will usually provide for interest liability in the event of non-payment, often accruing at a rate equivalent to say 4% over base rate.
  • Landlords can exercise various rights in relation to non-payment of rent, including a process called CRAR (Commercial Rent Arrears Recovery), which is akin to sending in a bailiff. They must give 7 days notice of their intention to do so. This is the usual first step.
  • Alternative steps might include litigation i.e. suing for recovery through the courts, or a process called forfeiture, which is the most extreme, involving peaceable re-entry of the property to repossess. There are significant legal constraints around this process. In summary therefore, these are longer processes - and in any event the courts may look dimly on such actions, if they are functioning themselves.
  • If you have provided a rent deposit then the landlord is likely to be entitled to take funds from this. You may be obliged to top it back up under the terms of the rent deposit deed.
  • If you have provided a company guarantee or personal guarantee then the landlord could seek to enact these guarantees, and serve demands upon the guarantors. These would be likely to be binding, but litigation would be needed, as above, to secure ultimate payment.

Options available

Our advice, if you are worried about your ability to meet financial commitments, is to talk to your landlord, or ask a professional adviser to do so on your behalf.

It may be possible to agree to pay rent monthly, rather than quarterly, in advance, to assist cashflow. They may even permit a rent holiday or rent reduction.
Landlords will each need to consider their own situation, and if the mortgage holiday provides them with some respite against interest payment liability then perhaps they can share this by way of a rent holiday or rent reduction.

Equally, they will need to decide whether to take a short term or a long-term view. It is often better to keep a premises let, even allowing a reduction in revenue in the short term, set against owning a vacant unit where, as things stand, they will be liable for empty business rates - a binary swing from receiving rental income to paying business rate outgoings.

Whilst some landlords will be more draconian than others, our experience is that many will be reasonable in considering their tenants’ plight. Many major companies have recently gone through Company Voluntary Arrangement, which have resulted in rents being reduced, sometimes quite radically, and landlords should recognise the realities faced by businesses, particularly on the High Street.

It is interesting, for example, to note that New Look, who have already been through a CVA, resulting in rents dropping in some cases by up to 60%, have nonetheless still asked landlords for a minimum three month rent holiday. H&M have asked the same question.

Summary

We recognise that in these difficult times businesses will be faced with huge decisions about protection and deployment of their cash, in relation to pressures beyond just property costs, including other creditors, staff costs, tax liabilities, etc.

If we can provide any support or assistance in relation to pressing property problems then we would be pleased to provide an initial consultation for free, and provide any necessary ongoing support at a significantly discounted rate to local businesses (our own health permitting) over the next three months.

CONTACT:

Jeremy Day FRICS Email: jd@whitmanandco.com Tel: 020 8747 8800 Mob: 07966 810030