The Complete Guide for Private Landlords Facing Coronavirus

The fightback against Coronavirus has begun, with countries across the world declaring war on the killer virus, enforcing lockdowns and shutdowns of their economies – and the UK is no different.

Below you will find a comprehensive guide for property landlords wanting to know how Covid-19 might impact their existing as well as planned investments – essential reading for anyone staying at home.

We live in unprecedented times, and with the situation both here and globally changing so rapidly every day, this resource will be continuously updated over the coming months – so please share onwards!

Hard-working landlords need to know where their investments stand, not least all those medical investors for whom we have built property portfolios, who right now are fighting on the front lines of the battle against Coronavirus.

Many forget that landlords are also professionals, or entrepreneurs and often heads of families. Many are elderly too – after all this is a long term game – and are perhaps the same people the nation is currently scrambling to protect. Real estate is just one piece of a highly interconnected social economy which currently needs a spirit of collaboration, compassion and positivity to be put back together.

The below guidance intends on helping the country get back on track, whilst ensuring the sacrifices being made by landlords are not forgotten in the days to come.

Is your tenant asking for rent-free periods or rental holidays?

Commercial rents are typically paid quarterly. Unfortunately, the spread of Coronavirus has coincided with the March 2020 quarter date, when the next quarter’s payments were due to be paid in advance – leaving many scrambling to find solutions.

The increasingly strict lockdown has meant many businesses, in particular in the retail and leisure sectors, have had to close. Clearly this has affected many tenants’ ability to pay rent in advance for a quarter or two when their incomes are expected to decline.

What are your options?

Now more than ever, you need to understand your tenant’s business and finances – scroll down to the ‘Reasons for many tenants to cheerful and stay home!’ section for more on this

The same applies for your own finances – can you afford a rental delay of 3-6 months? Remember, June quarter payments may also be at risk. Scroll down to the ‘Know your finances’ section below for more on this.

Priyen Patel, head of Pride Management, our management arm, states the following:

“Having managed commercial landlords ranging from individual families to the largest blue-chips for over 35 years, Prideview Group knows all about how to handle situations like this – the conversations to be had are not easy but we do urge landlords to act in the spirit of compromise:

  • Waive their rent partly or in full

    • This means you will be taking the hit - in the spirit of maintaining a long-term relationship!
  • Support their cashflow

    • Permit monthly rather than quarterly payments
    • Grant them a 3 month holiday, to be reviewed each quarter – remind them this will need to be made up within a set period, and with interest.
      • Warning - if your tenant does not have any covenant strength or operates or works in a business that was already struggling, or is likely to struggle once Covid-19 is behind us – they may never catch this up or may ask for a permanent rental reduction in future.
  • Insist on full rental payment

    • If you feel this is warranted, you are within your right to do this.
    • However, tenants in the retail, hospitality and leisure industries who cannot pay their rent because of the coronavirus lockdown cannot be evicted for at least three months, thanks to emergency government legislation.
      • Landlords had been able to seize a property within 28 days if a rental payment is late or there is a default. With the emergency measures, impacted tenants can now suspend rent payments to landlords in a three-month moratorium on evictions. This could even be extended further as per a recent government ban on the use of statutory demands and wind up petitions for the time being.
      • Warning – if you wish to remain firm, ensure you are happy to take possession back eventually.

Whatever you decide, tenants are likely to take it upon themselves to select one of these options without your consent. How you respond depends on your revised strategy for your property.

Also keep in mind some tenants will take advantage of our government’s generous financial packages – it is all of our responsibility to ensure that public funds are not abused. Ask for their financial information and also confirmation that they have first claimed the financial support available.

For residential buy-to-let properties, renters have full government protection and emergency legislation has been put in place to suspend new evictions from social or private rented accommodation while this national emergency is taking place. No new possession proceedings through applications to the court may start during the crisis. Your options remain the same as above, except you will be dealing with individuals rather than companies – recouping any unpaid rent will be much more difficult.”

What advice do you need?

Reasons for your tenants to be cheerful and just stay home!

Most landlords invest in commercial property for long-term, hassle-free, income. So we acquire properties let to tenants in necessary (or what have now been dubbed ‘key’) industries. Take convenience stores for example – we have acquired hundreds of these for clients and they are extremely busy right now.

But many strong tenants have been forced to shut, in the national interest – and as a result, the government’s unprecedented financial support measures will ensure most of their fixed costs are covered whilst Coronavirus is upon us. We spoke to Esmail Jasat of Signature Tax, who listed the key measures that have been enacted. Think about McDonald’s as an example when reading below – their trade will come back roaring once we conquer Covid-19:

  • Business Rates have been wiped!

    • Business rates are one of any property occupiers most substantial fixed costs.
    • The Business Rates Retail Discount will now be available for all businesses occupying retail, leisure, nurseries and hospitality properties for 2020/21, in most cases reducing the Business Rates bill for 2020/21 to nil.
      • Also now included in this category are Estate Agents – will will try to keep this list up to date as the situation changes.
    • This is a game-changing initiative by the Government, and longer term we do not expect rates to return back to their original levels ever – we need our High Streets – life at home isn’t easy!
    • Warning – not all businesses will qualify for this relief – contact us if you are unsure about your tenant’s position.
  • Small businesses are being given cash grants to stay afloat during the lockdown

    • We mentioned that covenant strength matters due to risk of default / non-payment
    • Small businesses let to independent tenants have now been given a huge boost which should help them to cover rental payments during this crisis:
      • Grant funding of £25,000 has been announced for smaller businesses occupying retail, leisure and hospitality premises. These will be businesses with a rateable value between £15,000 and £51,000.
      • Grant funding has also been announced of £10,000 for all businesses, whatever their sector, who already receive small business (under £15,000 rates) or rural rate relief.
  • 80% of staff wages will be covered for all firms that have paused trading

    • Under the Coronavirus Job Retention Scheme, the government is focused on paying support for workers who would otherwise have been laid off – furloughed workers.
    • If a tenant can no longer pay for a team member due to current reduction in business and work, they can 'furlough' them – they stop working / go on gardening leave – and the government will pay 80% of their wages (up to a cap of £2,500 per month).
    • For self-employed employees, a similar support package has been released by the Chancellor which will support 95% of people trading in this way.
  • A number of other measures have been put in place to support tenants’ cashflow

    • Loan repayments
      • Many major high-street banks to permit mortgage payment holidays
    • Taxation
    • Low-interest loans on very favourable terms are available
      • The Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs (with turnovers of no more than £45m p.a.) through the British Business Bank
      • A new lending facility from the Bank of England has been set up to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows

What advice do you need?

  • Now is the time to look at your portfolio holistically - to help us offer portfolio-level advice, we have released a downloadable portfolio spreadsheet to fill out and send back to us.
  • You need an agent that can not just buy and sell, but also manage commercial property. With over 35 years’ experience, through thick and thin, we will help you make those key judgement calls.
  • Download the portfolio template here and fill out the contact form to set up an initial chat.

Know your finances!

Most landlords are very prudent, and in the last decade following the 2008 financial crisis, few have become highly geared or bought aggressively. Commercial property continues to provide a fantastic vehicle for investing one’s savings and generating long-term income – it’s a numbers game and now is the time to be on top of your numbers.

With income on commercial properties currently being disrupted, we, like the tenants who pay our rents, must re-evaluate our costs.

  • Can you delay your loan repayments?

    • For residential landlords, the government has announced a 3-month mortgage payment holiday for buy-to-let mortgages if tenants are unable to pay the rent due. It is important to note that interest will continue to be charged during the payment holiday and any foregone payments will still be owed at the end of it.
    • Commercial landlords may also get a mortgage payment holiday from their lenders – but, according to Costar News, it’s on a case by case basis.
      • You therefore need to reach out to your loan account manager for each property, stating your case, and showing evidence that your rent has been unpaid.
      • We are already talking to the main lenders, so feel free to contact us to discuss.

Nilesh Patel, Principal at Prideview Group and a Chartered Accountant by profession warns:

  • “This process will take time – manage your cashflows accordingly and don’t skip payments without agreeing! And if you can avoid building up more debt, we would always advise this – these are lessons learned from the previous financial crisis.
  • One lender has offered a 3-6 month payment holiday with the loan term to be extended by the same amount – this seems one sensible compromise we would recommend.”

What about your private residence?

    • If you are a commercial property landlord, you will undoubtedly own your own home. You may be able to obtain support on short-term support-through deferred or reduced payments for your home mortgages and long-term support-by extending the remaining term of the mortgage and have reduced or no fees for missed payments on credit cards, loans and mortgages.
    • Nilesh Patel warns again
    • “If you can avoid this, better, as it’s not clear if your credit score will get hurt in the medium term – which is precisely when we expect the buying opportunities to come.”

  • Is property investment your main business?

    • If so you may qualify for the The Coronavirus Business Interruption Loan Scheme (CBILS)
    • This scheme supports businesses that require short-term cash flow support.
    • It supports SMEs with access to working capital, including loans, overdrafts, invoice finance and asset finance, of up to £5 million in value for up to 6 years.
    • The government will provide 12 months interest-free payments, so smaller businesses will not face any upfront costs. These loans should be available from 23 March 2020.
    • The application process is not straightforward and is still being devised – you would have to approach approved lenders individually and put forward your business case for a loan, which would likely need to be supported be detailed financial information.
  • Whatever your core business is, remember financial support is available

    • Some of the policies stated in ‘Reasons for many tenants to cheerful and just stay home!’ above may be relevant to you
    • For example, If you own a VAT-elected property, VAT you collect on rent can be held on account. With payment deferred to the next quarter of VAT payments for businesses until the end of June 2020. Businesses will have until the end of the financial year to repay these payments.
      • Check with your accountant or managing agent that this is being done – it will help cashflows – but remember this is not your money and needs paying back!
  • Are you considering liquidating any of your properties to raise cash?

  • Or are you well covered for the above, and actually sitting on additional cash?

    • In that case you need to register with us / contact us now, we are working on several ‘once in a decade’ opportunities, and with over 35 years of investment experience, we are confident we know which sectors of the market will outperform in the long term.
      • Read the section below ‘Do you smell an opportunity and have cash funds?’ for more on this

What advice do you need?

How can Property Insurance cover help?

  • You can’t claim for Loss of Rent

  • What should you do now your property is temporarily vacant?

    • Simon Bird, Director of Bircroft Insurance Services states “In most cases, nothing. However, we are waiting for confirmation on this from the main insurers. When a property is vacant, it represents a much higher risk which typically translates to higher premiums and strict unoccupancy conditions imposed on the landlord (such as weekly inspections).”
    • “However, our current understanding is that insurers will keep premiums at occupied rates and will not impose any unoccupancy conditions providing temporary closures do not exceed 90 days.”
    • This represents a fair compromise and we advise all landlords to pay their premiums as usual.
    • Remember, you own a bricks & mortar asset, to not insure it for the traditional risks (such as Fire, Storm, Flood or Theft) is not prudent. And if you have finance, it will be a condition of your loan and your lenders would be notified of non-payment.
    • Although insurers have not specifically requested this, we recommend you notify them that your property is currently unoccupied, which you would be required to do in normal circumstances.
  • Part-payment of insurance is possible help cashflow

    • Yes it is. Most landlords pay annually in advance and recharge their tenants who typically have leased their properties on a Fully Repairing & Insuring basis (FR&I). Should you wish to spread payments, you can pay by monthly direct debit, but please note this will be subject to an additional interest charge. The policy should not auto-renew, but do confirm this with your broker.
  • What if your tenant doesn’t pay their premium?

    • There is currently no guidance on this and therefore the advice provided above in the section ‘Is your tenant asking for rent-free periods or rental holidays?’ applies.
    • Any debt should be added on account for payment next quarter at the earliest.
    • Do note, should they not pay, they will be unable to claim or benefit from payouts associated with the traditional risks that insurance covers – and with properties now being unoccupied, now moreso than ever is it important to have that cover in place.
    • Should they provide alternative quotes, you may consider those, but as a Freeholder you are not required to simply go for the lowest premium, but rather a reasonable one.

What advice do you need?

If you are mid-deal, have you got legal protection in case things don’t improve?

It’s time like this when you will quickly realise where the value of an experienced legal team shines through. We have always maintained that lawyers are one of the most important elements of the real estate market, and many have adapted quickly to ensure transactions can continue.

We spoke to Jaymini Ghelani, consultant at Axiom Stone who is advising her clients the following:

  • Insert a Covid-19 clause into your contract

    • No one is immune to Coronavirus, and factors beyond our control may lead to completion dates being impossible to uphold – accordingly a fair provision for delay needs to be factored in, which can be exercised if Covid-19 can be proven to have impacted one of the key parties to the transaction.
  • Consider what deposit you want to stake on exchange

    • Typically it is 10%, but if there is a chance you may be unable to complete due to changes to cashflows which cannot be protected by a specific Covid-19 clause, your deposit may need to be forfeited.
  • Act in Good Faith

    • It is not just essential to our industry, but to our economy and country as a whole, that commercial real estate transactions can continue to take place.
    • Sellers need funds in order to cover all manners of expenses, whilst Buyers have funds that they want to invest – both are equally important and in a time of national emergency we would expect all parties to agree to co-operate together so far as is practicable and prudent and act in fairness and in good faith to enable the other to discharge their respective duties and obligations as per their agreed contract.
      • This is particularly important where physically signing documents is all the more difficult and reliance on scanning / email first and posting later makes more sense.

What advice do you need?

What about management of common parts?

As Freeholder of a multi-let property, you may be responsible for looking after shared facilities, the cost for which would be recovered from your FR&I tenants by way of service charge. More meticulous cleaning is one particular order of the day, but finding labour at this time may increase costs to a level that they become difficult to recover.

  • Communicate with your tenants before undertaking any maintenance

    • Rachael Reynolds and Richard Marshal from Dac Beachcroft solictiors write: “Leases usually afford landlords a degree of discretion over services to be provided and this will need to be considered on a case by case basis. This is probably best resolved by discussion and any agreement on who is responsible for the extra cost being recorded.”
  • What if your tenants dispute payment?

    • There is currently no guidance on this and therefore the advice provided above in the section ‘Is your tenant asking for rent-free periods or rental holidays?’ applies.
    • Any debt should be added on account for payment next quarter at the earliest.

What advice do you need?

How can Landlords help the NHS?

In our opinion landlords are already doing so much for our country by engaging in sensible discussions with tenants about rents and other costs, enabling so many to stay at home at this time.

For those of you with vacant properties in particular, we may be able to do more. We have spoken with the NHS’s property advisors and can confirm their current requirement is as follows.

Please note we can’t confirm just yet what compensation will be provided for facilities provided temporarily. Should you have anything that might suit, please fill out the contact form below. These requirements will change, and of course there will also be long term needs too.

Do you smell an opportunity and have cash funds?

We caught up with Director of Prideview Group’s Investment team, Mark Hoffman, who is currently working from home, to gauge his observations. "We have been taking calls from many investors who have been sitting on the sidelines waiting for opportunities expected to be thrown up by Brexit (remember that?) - so what are we advising our clients? Are we advising our clients to withdraw from deals? No. Are we advising clients to ‘sit tight and see what happens?’ No.

  • Now is the time to make sensible, prudent and well-informed investments in the commercial market. Lets look at some reasons to be positive:

    1. Interest rates are at an all-time low – borrowing money has never been cheaper, and these rates are here to stay. Buy with cash now and refinance when the valuers can get into properties to value them.
    2. This pandemic will not last forever. This is different to the financial crisis where the banks where knocking on our doors demanding sales. It is in the hands of the UK government to ensure this passes, as long as the shutdown is temporary, the economy is strong enough to bounce back – unfortunately in other nations this won’t be the case.
    3. Commercial real estate comprises bricks and mortar.  In good times and bad, it ALWAYS has a value. Unlike the stock market, the property market is illiquid meaning that you won’t see rapid rises and crashes in value – but stock selection is key.
    4. The funds need to sell – they need cash for redemptions. Supply and demand favours the private investor.
    5. There will be very little business done if you require debt finance because the valuers will have to rely on desktop valuations – cash is and always will be King!
  • Buy sensibly and consider core assets that have and will continue to thrive through this crisis and beyond.

    • The demand for well let, secure, blue chip covenants in ‘key’ industries remains incredibly strong as investors search for income in a low interest rate world. We offered £100,000 OVER the asking price for a convenience store in the week after lockdown was announced and still didn’t get it!
    1. Convenience stores – if this crisis has proved ANYTHING it has proved the demand for organized retail of food and supplies is essential, and every community needs an outlet.
    2. Medical practices – both private and NHS will prove robust investments
    3. Service businesses – they have been consistently strong and will recover due to their loyal customer base
  • Our top tips for investment during Covid 19

    1. Look at the covenant of the tenant – can they cope with no trade for 3 / 6 months?  Is the brand robust? Look at the balance sheet and the underlying net asset value
    2. Look at the rent – the yield may look attractive but is the rent sustainable?  Is it over rented – it probably is so don’t assume the tenant will renew / regear at the same rent
    3. Look at the business of the tenant – would we advise you to buy a bookmaker now? No – because there isn’t a betting market – there are no sports and when they do restart will people use their Apps?
    4. Look at the yield – without wishing to sound mercenary, now is the exact time to invest, when the market is at the bottom – not when it is at the top.
    5. Deal privately or off-market - with ballroom auctions temporarily postponed and mass-marketing of properties unlikely to appeal to sellers, it’s time to work with an off-market specialist (not naming any names!).
    6. Take the advice of professional property advisors – we’ve been in the market for 35 years + and have experienced the highs and lows of commercial property – we are at your service

As a signal of the appetite out there for UK real estate, we have secured commitments totalling £100m from investors in New York, China, Israel and Hong Kong in March ’20 – they all see clearly the resilience of the market and value in the weak pound."

Where is commercial property headed in the post-Covid-19 world?

JLL's Research and Strategy Team's report 'COVID-19: Global Real Estate Implications' emphasises that "the longer-term societal and real estate implications could continue to be felt over the years to come. Mitigation activities will last for several months and it will take some time to reach a full recovery. The impact and aftermath of COVID-19 will change our way of living and working, potentially leading to new operational models." In particular, it suggests the following long term trends may accelerate:

  • The death knell may have sounded for many traditional retailers

    • "Retailers with the infrastructure to fulfil online orders through home delivery are currently being perceived as beneficiaries of consumers' reluctance to visit stores and we are seeing an increased conversion of people to online."
    • Future rents are bound to be affected and we hope the government will not return business rates to their original levels, as the country needs physical stores and life in its town centres.
    • However, many service sectors within the wider ‘Retail’ category, such as hairdressers, nail salons, beauty therapists, will come back strongly after this crisis, whilst necessity goods retailers such as convenience stores continue to remain open and are busier than ever.
  • Supply chains will adjust

    • "In the longer term many retailers are likely to rethink their supply chains to ensure continuity of their operations and to mitigate risks of future shocks. Coupled with initiatives to improve the sustainability performance and limit the environmental impact of wider operations, retailers may opt to produce and house more stock locally. This may boost additional demand for logistics space and/or drive the repurposing of existing store networks."
  • Office demand & business travel in particular may be impacted

    • This may be "the catalyst for remote working to become a more entrenched part of working life"
    • The report also asks the question "Will carbon emission reduction and reduced air travel improve productivity and shift enterprise perceptions on the need to travel and the importance of sustainability?"
  • There will be a flight to safety, both in consumer spending and commercial investment

    • "Non-essential goods items and leisure services will be hit harder than perishables and dry goods"
    • Consumers will prioritise where their pounds are spent, it’s a tough lesson that many are now learning and one which won’t quickly be forgotten. As specialists in investment, we also hope more people will save money rather than spend - this is the key to long term financial security.

One area the JLL analysis fails to mention is medical sector. According to Vishal Patel, Principal at Prideview Group, "medical property investment & development will take precedence. The temporary nationalisation of the private medical sector demonstrates that more medical investment is needed to protect the country from future pandemics. We also want to point out the fantastic role many of our Pharmacists and GP clients have played, as being the first and last point of contact for the majority of people, shielding our hospitals from non-urgent cases, and doing it under extreme pressure and in the case of Pharmacists, without much government support."

Ending on a note of optimism and hope, Vishal continues "once this is all over, Prideview intends on being at the centre of the party. Many Pubs, Restaurants and Leisure properties who are all seeing tough times right now will bounce back, and we are actively looking to invest in such properties, with funds available now." (for a useful, in-depth analysis of the Pub sector in particular, do take a look at this summary written by Michael Penfold of AGG - which sees value in suburban pubs and pubs with gardens)

Whatever your concerns, requirements or questions may be, come and talk to us (remotely that is), by first filling out the contact form below. We are open for business and will be trading throughout. You can also WhatsApp Nilesh Patel, Principal at Peideview and author of this article, on +44 7970 717 931.

We wish everyone the best of health and urging all who can to stay home and save lives.

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