Hi, I'm Justine Ball, legal Director at Shakespeare Martineau, speaking on how charities can seek to manage their rental payments under their leases, given the severe impacts of COVID-19.
So, when your screen, you'll be able to see the slide myself and a few icons at the bottom, one of which is a Q and A button. I really encourage you to use this throughout the session. If you want to ask me any questions at all, what I'll do is I'll collate those, and I'll answer them at the end of my presentation.
So, we nearly two months in lockdown, and these last two months have been extremely tough, UK businesses with numerous well-known High Street retailers, having felt for administration administration and other insolvency processes as their businesses collapse due to the current crisis. This is no different. For UK charities, they, too have been forced to close their shops and some of their offices.
These premises produce significant levels of income for the benefit of the charity. And without this income insignificantly affects the ability of charities to continue to new its operations as you well know, some charities rely solely on the taking of their shops to deliver various services.
I think it took a little while for the government to recognize that charities are also required support. And they require specific insignificant assistance to get through the current locked down and to continue to support the community with ... charts blames. On the eighth of April 2020, the government announced £750 million of funding for UK charities. So charity should consider whether they are entitled to apply for this funding to help them during his time.
The National Council for Voluntary Organizations has a very helpful section on its website on the funding options available, which may assist you, so I do encourage you to go and have a look at that.
However, it won't be funding support the charity's need during this period. But a consideration of how charities can maintain their cash right by avoiding significant payments such as rent, which could be thousands of pounds per month.
The March quarter days passed and charities may or may not have paid that quarter's rent. However, the June quarter is fast approaching. so this webinar will provide you with some advice on what charities need to do now in order to manage rental payments so that they can redirect these much needed funds to other areas of their organizations.
So, can you avoid paying the rent at all?
Charities will be contractually obliged just like any other tenant to pay rent, and of the Psalms pursuant to the leases. This could be on the core two days on a monthly basis. There is no automatic entitlement for tenants or charities to withhold payment of the March quarter or the June quarter rent. It is a contractual obligation and no measures have been introduced by the government, the wave payment of the Psalms.
So as a result, if you can't pay the rent, then you're going to have to have a discussion with your landlord, and if you don't pay the rent, landlords will be able to take formal action against you in order to recover that money. But I'll come back to that later on.
So, as I've said, discussion is, Can you now need to go and have a discussion with your landlord to see whether there is any way in which you can defer payment of the rent? And there's three different things you can look for a rent holiday, which or rent concession and are ready to Thurman.
So when concession is where the landlord agrees to rent reduction, and we've seen requests and acceptances from landlords where people are asking for 100% risk reduction for March quarter or even a 50% reduction.
A rent holiday is where a landlord is willing to agree that a tenant withhold payment for a period of time, and then we pay that at a later date, perhaps at the end of the lease term.
And then a rent deferment. A landlord will agree to a tenant arranging payment of rent over a number of months at some point in the future when it is hoped that market conditions will improve. For instance, we have seen agreements reached between landlords and tenants were marching gene quarters, rent or deferred until September and then they pay that even monthly installments over 6 to 12 months.
So it's key that you approach your landlord in writing. First of all and then follow follow it up with a phone call in order decon evidenced your proposal in a paper trail down the line. But, first, you need to consider what proposal you can put forward to your landlord. Do. You want to request short rent free periods, say, the March Quarter, or 50% rent reduction, for the first six months, to offset the sudden impact of coronavirus on your charity.
It's unlikely that landlords will agree it's 100% rent concessional for March and June Quarters, as they will have their own obligations to pay upstream, such as nannies.
So, it's key for charities to formulate a reasonable proposal and put this to your numbers for consideration. The proposal should be credible, so that this can be justified to landlords when negotiating the payment further.
And if an alert is willing to agree on rent free period or rent concessional rent to firm, and then this can be documented easily in a memorandum, or aside letter, to ensure it's properly recorded.
Landlords will understand the potential alternatives, if he refuses to engage with you, to reach agreement on managing the payment of one. Lower Ashley Caskets, an oasis, or a few of the well-known retailers that fault for administration as a result of the impact of the virus. So if landlords fail to listen to you, and there's a huge risk to them, of rising numbers of their tenants fall into a form of insolvency.
I do not in any way recommend threatening insolvency. If a landlord does not agree to rent concession. But you can highlight that you are a charity. That you are quite a sport and communities, especially during these times. And if they don't work with you, this will only result in them jeopardizing their long-term income. And that's really what they care about.
So now looking at whether you should or shouldn't pay the rent. So if you're unable to reach agreement with your landlord, then there are a few options for you. You could first not pay. Under the coronavirus at 20 20, landlords are not able to forfeit leases as a result of the non-payment of the March quarter, and so if you don't pay, landlord can't come in and terminate your lease. However, the landlord's right is not abolished completely. It is simply deferred at the moment until the 30th of June 2020.
So whilst no action can be taken by your landlord immediately terminate your lease for non-payment of rent, they could do so thereafter.
In any event, a landlord may not want to forfeit, because that would result in an empty unit and no long term income.
Instead landlords can take reaction for the unpaid ransoms or from any guarantors of your laces. So he could be the subsidiary charities, the tenants, and the parent company's name the guarantor on your leases, Subsidiary company doesn't pay the rent. Landlords could go in and take a reaction against the guarantor.
However, in some further good news for tenants, government has introduced further measures to protect tenants who are struggling with the impact of .... And on the 23rd of April 2020, the government announced changes that will be made to serving statutory demands, a streamlining opticians, and using the commercial rent arrears recovery process, which is otherwise known as craw, or a live action.
So firstly, looking at stock demands, these are what they're going to be called ... did. So it's unclear what that actually means, but I think it means that there'll be a temporary ban on issuing new statutory demands for a certain date, and it will be nullifying those that have already been served, I think, from the first of March. So if they are seeking recovery assumes that you can't pay due to the Coronavirus than those touched amount to be considered as voided.
We wait further guidance from the government ominous but I think it applies in the first of March, as I've already said, and it will last until the 30th of June 2020 and will only apply to commercial premises. It also doesn't pay the guarantors will benefit from this exemption. So if a subsidiary tenant company named on the lease is, doesn't pay the rent, landlords could come after and guarantors and that means setting a stop demand on them.
There's also changes to craw, which is the ... was talking about previously. And this is where landlord can come into your premises and take control of your goods if you don't pay the rent. Now, though, download only utilize cry if 90 days of rent isn't paid. So, for example, analog could not utilized craw a fit if the tenant hasn't paid March months, or the April month, or both of them, because that any equate 3161 days. There has to be 90 days of rent outstanding. Only then can allow issue a notice of enforcement.
The original rules permitted, the landlord could issue a notice enforcement and utilize cry if there was only seven days a friend, outstanding. So this is a significant extension on the current rules.
And I think the key message from all of those changes from the government is that they're not waiving the tenants requirement to payment but they're giving tenants time to pay the rent and the additional time it needs to look at each structures disgust with landlords and try and reach agreement. So whilst it's encouraging that tenants won't face immediate forfeit direction or insolvency action films on paid, it's giving tenants or landlords the time to engage in those negotiations trying reach an agreement in order the resolution can be reached. Further, just to quickly add, there's nothing stopping us from issuing money claim against you, if you don't pay the rent. So they could issued court proceedings for the unpaid rent if that's not paid and they can do that at any time. Although the court processes are significantly delayed at the moment due to social distancing. People have said things like that, that may well catch up in the future. So that's something else to think about.
Another option is termination of your lease. So, charities really need to review your agreements and see whether you are holding over on a, on a business lease, that is, that has expired or shown a license arrangement. or if your agreement contains a break rules. Because you may be able to unilaterally serve notice on your landlord in order that you can bring those leases to an end and, therefore, avoid paying rent going forward.
And then the final option, as you'll see, there, is keep negotiating and be persistent. The most people's measures being introduced by the government are encouraging a dialog between all parties to work together and you can use some of those measures as leveraging your discussions with the landlord. So, be persistent, keep negotiating and you may just be able to reach.
So, you know, it's everything I've discussed today, my top action points for charities now.
Consider a reasonable proposal that you would like to put forward to the download partnering, concession partnering to federal and be able to justify why this is being requested. The more credible your proposal, the more persuasive you will be and the more like a landlord will engage with you.
You should make immediate contact with your landlord by sending to eat your proposal in writing. You should follow up with a call, so they can acknowledge receipt of your request, and open the lines of communication with them.
..., listener, a, persistent, and negotiate, Set out some of the points made in the webinar today, and see if you can persuade your landlord to reach an agreement, the June quarter days, a few weeks away. So you do have the time to explore those options now.
Consider all the circumstances and the risks for not paying the rent. You know, it's not about not paying the rent and not engaging with your landlord, because you think that, you know, with all the government measures that have been introduced, you can not pay the rent at all. That's not the case. It's giving me the time on the leveraged speech, rather than say, look, well, at the moment, you can't. You cry, and you can't forfeit and you can't have stopped and I'm so engage with me and let's try to create something sensible to preserve both, to preserve your income, and to preserve my business in the long term and you're targeting.
Final thing there is keep up to date schemes that are being introduced by the government. You can utilize the NCBI website as I mentioned before, And the charity tax group website, which has specific advice and guidance for financial support for charities.
So that brings to an end my session, I will just have a look to see what questions have been raised in the question and answer tab. And I can see one questions being raised, and let's have a look. OK. So this is a really interesting question, and it's about the new crawl meshes that I talked about in my presentation. So a Notice of Enforcement have bait has been served upon you, and it looks as though it's for the April month of April rent, as well as some service charge. So what should I do now, OK. That's a really good one and I've been getting so many queries about this from my tenant clients, where landlords are surging notes and enforcement even though the changes have taken place. So the first thing you need to do a check validity of that notice, and you should send that to your advisors. Your lawyers, and they can help you with this.
So the first thing I would say there is, if it's for rent and service charge, that's a bit naughty on the landlord because you can only use the craw process for outs standing rent, and not service charge.
So all of a sudden, that that notice would be invalid on the basis, that it seeking service charge, as well as rents, that's one point. The second point you need to check in that notice, how much rent is it for? You said you, thank you for the April rents, well that's less than 90 days is as the MacPhail was less than 90 days, so again, that No two enforcement is a guide on the basis that does not known today different. That's outstanding. And as a result, you can write enforcement agent white to the landlord and say that a notice of enforcement as being served is a void. It ineffective and you you will not be paying some pursuant to that notice and that they should withdraw that no two straight away. And then you can use that to get them, to engage with them and say, look, this isn't the way forward. Let's have a discussion to see how we can, we can get this paid over the next couple of months.
OK, and I think that's all for the questions for today, So, if you'd like to get in touch with us, please do so, you'll see the detail showing up in front of you, or you can visit our coronavirus Hub for advice and guidance.