Webinar
How to Guide for Landlords: Realising value and getting paid this June Quarter Day
How to Guide for Landlords: Realising value and getting paid this June Quarter Day
Landlords will have their own financial obligations to meet and therefore payment of the June quarter rent, especially if the March quarter rent has not been paid, will be crucial for many. The government has very recently introduced various measures further restricting a landlords’ ability to recover rent from tenants which will make it even more difficult for landlords to collect rent
In this webinar, we consider what options there are available for landlords to maximise their returns and what action they can take now to realise maximum value from their assets in these uncertain times.
Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us and you can view past webinars at SHMA®ON DEMAND.
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Webinar transcript
(Please note this is auto-generated and un-edited)
0:00
OK.
0:09
Hi I'm James Fownes partner in the real estate speech team here at Shakespeare Martineau, Welcome to today's webinar, this webinar, it's A How to Guide for Landlords Removed from Locked down to, as our CEO calls it New abnormal.
0:22
We will provide practical solutions for commercial landlords on how to realize value you get paid.
0:27
Before we start, just a few points on how this online session will work.
0:30
On your screen, you'll see a Q&A icon, these users to ask your questions, and we'll respond directly after session. So, why are we focusing on how to assess landlords of his time?
0:42
The reason is simple.
0:43
Jayne Cortez rent foundry for many times a few days ago. The latest figures show that only around 38% commercial rents are being collected is really live in a search. There is huge scope for them to improve that level of connection.
0:57
Solutions on how to really boost that position now, there really is no time to waste on this. We recognize the pressure from turn on those well beyond the lambdas, creditors and others.
1:08
I'll be covering issues around landlord and tenant negotiations around concessions and .... Most of my colleague, Justin ..., will be covering London remedies, what London's can do to maximize recovery in the absence of a negotiation assessment being reached.
1:22
Backdrop to this is the Government's Duty Release Code of Practice for commercial Property.
1:26
Code of Practice has a lot of layers, which will be hard, disagree with, ensure the code encourages tenants, pay their rent, and food if they can, and pay what my kind of fake on. This same time, as acknowledging that manual should provide supports businesses, if they're able to do so. Because it recognizes that landlords want identical grape.
1:43
Neither attendance, within 10 unfriendly. The code does have a nod towards the fact that some animals depend on rental income of a bank loans, maybe even to provide for their families.
1:54
So this will be in a better position to whether any temporary cash flow still, able to focus on the longer term.
2:01
Code also recognizes there'll be some tenants which have not been able to trade to 12 months, simply cannot meet the rental obligations at present. And actually by finding creative ways to meet those obligations could put themselves into insolvency.
2:13
Was maybe others, which have continued to trade Ups, taking full advantage of government support packages, may even have thrived in the coming crisis.
2:22
In short, the code recognizes that will not be a one size fits all solution, landlords, and tenants, we need to think carefully about where they sit and accountable and to sit on this spectrum and deciding how best to approach negotiations.
2:34
For example, nominal, which is well equipped to deal with short-term cashflow, receives, 10, teetering on the edge of insolvency when advised to take a different approach for longer than the pressure from its lenders.
2:48
Where he's got a 10, perhaps he's got online delivery platform is expanding so rapidly, struggling to keep up with demand.
2:54
Bespoke solutions will ultimately be needed so far so good, but for the time being, at least the code is purely voluntary, It is not capable of being enforced.
3:03
As a code like teeth, landlords will continue to operate in an environment where there's real uncertainty for income stream.
3:10
There's no guarantee that tenant can people do, say, despite the case principles of reasonableness, transparency in good faith?
3:19
None of those were the best. There'll be operating in a way which they need to.
3:23
They take action now, make sure they manage their portfolios effectively, takes commercial issues in mind, and in appropriate cases, we can help our clients think about the sorts of ways on those and tenant, may be able to work together to keep the lights on.
3:37
May well need to be backed up with threat of drastic action by non laws in many cases, but ultimately be able to be done. We can help them to structure these deals now.
3:47
Ensure potential ways for each county to move towards that commercial objectives for each receive something in return.
3:54
What's the code picks up that there are a number of rent concession permutations which tenants maps for, landlords may give rent total days and deferrals, monthly rent and the like.
4:04
In reality, the Chancellor mutually acceptable solution being reached, vastly increased tenant can offer something valuable to landlord return for such concession.
4:13
It's not because I didn't even insights into what tenants, landlords, and this is where we can add real value.
4:20
We can use our experience and knowledge to help downloads develop creative request their own, to really meet their individual commercial objectives. Face with requests from tenants.
4:29
We can help non was moved from the prospect of no recovery, bringing monies in, achieving that wide objectives, or sometimes base.
4:36
Whilst we can discuss your individual situation with you offline, we can consider a few examples of what landlords can not for.
4:43
Now, strip search structures can be worked through. Agreed, and properly documented.
4:50
Then, we'll say, Well, I would focus on maximizing that income to medium, to longer term may actually be able to gain a rule by granting a short-term rank concession now.
4:58
one obvious way for landlords to achieve this would be to effectively increase the length of lease term. Greater certainty of their income stream, a longer period, But she's not simply a case of just varying release to have a longer end date.
5:12
That would be a mistake. What constitutes a syringe and re grant tenant will be inadvertently go into the periodic tenancy, certain terms and the security of tenure into the landlord and Tenant Act 154. This could be a major issue for landlords who wish to have uncertainty that they can bring that premises back into use at a particular time.
5:32
To avoid a surrender and regrouped situation, this can be achieved by granting a really great place for revision relates to kick in at the end the lease expired.
5:40
Another way to achieve a similar effect will be to agree that any tenant break clause is part way through release, will be supplied, or deferred, just would effectively increase a times. Greater certainty of income, may have a positive impact on capital if I provide some comfort to lenders.
5:57
Alternatively, numbers can look at the ways in, which at least reduces their ability to cover their costs from the tenant, make appropriate changes.
6:04
For example, somebody says: have service charge caps.
6:07
one was able to recover their costs, are managing a building from their tenants may be an opportunity to agree that any surcharge cups are displayed for at least increased recovery, of the medium to long term, is enhanced potentially, even based on those capital funding.
6:22
This could be particularly important in the current environment, is one of those are may be obliged to carry out works, to help control social distancing minimize risk KV transmission. Stuff's not to return to the office or mass, will be concerned. They can't recover such caution that happens at present.
6:38
Can even further ahead, and maybe landlords and properties, which are in a poor state of repair.
6:42
Where tens of repairing obligations, which are limited by schedules a condition which is likely to have an effect negatively on both Capital Valley landlords, ability to easily relax at the end of the term, based on those willing to take a longer term view, and maybe merit, and negotiate in any limits on repairing obligations on a surprise or lessons. And this can mean landlord, either, has much greater chance the property being returned in good condition at the end of the term. Credit at a chance of recovering damages for dilapidation at lease expired.
7:15
Other words, we're actually bringing in a fool repairing government tunnels assets, we have a great, a tangent protection download, may lead to enhanced capital value.
7:26
These measures could perhaps be complemented by none was being provided with great security after all benefits, assuring that the length of lease term may be limited, or even non-existent, it's a tenant becomes insolvent in the meantime.
7:37
Touch again says guarantees could be put in place, for, example, parent company to guarantee from a strong equivalent or personal guarantee from the directors.
7:47
This will also give them those more options in terms of who'd see recovery from down the line.
7:53
And particularly to the tenant itself, enter into administration or liquidation.
7:58
Importantly, in the current environment, this might also help avoid some of the restrictions which Christine will mention the moment.
8:04
This is because, in some cases, during tenants are not met guarantors, which will have certain protections it could be agreed to bank deposits.
8:13
Put in place or an existing menopause is increased.
8:15
The appropriate time, once the crisis has passed, took the tenant, then failed to put up the money. Deposit. Nanos may perceive the 10 for this in the usual way.
8:25
In terms of opinion, the creativity further still.
8:27
Brought can be given as to whether rent free periods can be gone to the lease With an entirely separate agreements are entered into, For example, sort of loan agreement, which is backed up by security over the Thames further assets. Could be put in place. Content, private mortgage, this would have the benefits of sidestepping, the new restrictions on recovery of rent, would also provide landlords with greater security.
8:50
Long list for the portfolio properties. It's likely that other issues may be in play.
8:54
Example, It may be that there is an upstanding rent review, as London can conclude, which would have a desirable effect on multipliers, across its wider portfolio.
9:03
Perhaps the key data valuation was pretty cool.
9:06
In these circumstances and under what may well be prepared to grant a short-term concession preventive, each big reach that particular figure, which will help across its portfolio.
9:16
Simulate maybe a landlord which could use this opportunity to bring non-standard weirdly rental provisions in the rest of its portfolio. This could mean in the medium to long-term, landlord has handled friendly reviews.
9:30
Finally, of course, made landlords, which may be looking to take back possession, to facilitate redevelopment, simply just use the property for themselves.
9:38
If this is the most objective, may seek to ingredients session of al-andalus break.Â
9:43
Alternatively, if a tenant has the benefit use accusative, tanja May will be best to agree a short-term contract it out.
9:51
one was wishing to be coming out with development tool for other uses. You might do otherwise be tied in for lengthy period. Short-term concession now help unlock significant value behavioral.
10:03
We can help nominal strip to these sorts of bespoke deals. We look forward to working with you to properly document any agreement reached.
10:09
Now, going to hand over to Justin, spoke about downloads for more recovery options.
10:13
Just saying, Thank you, James. You might picked up some really useful tips in that session on the creative solutions that can be exploited tenants to seek to maximize recovery and realize value in the new abnormal. But what should landlords do when they've exhausted these avenues? You've tried to engage your tenants but you don't seem to making any progress reaching an Agreement and you're receiving Neuman's at all from your tenants.
10:37
So, in this part of our webinar, I will take a look at what recovery options are available to you in terms of what action you kinda cannot take to recover unpaid rent, and what tactics you can employ to seek to maximize recovery where possible.
10:51
The lockdown measures imposed by the government in response to the coronavirus pandemic are slowly starting to ease, which means that various businesses are now starting to slowly re-open. All of this is good news for landlords, and tenants will have opened premises and more income coming into that business, which can then be utilized to pay liabilities such as rent.
11:11
With this in mind, a number of landlords and tenants have managed to reach agreement in relation to the March quarter, when this might include integrating a rent free period or rent deferments.
11:21
However, the June quarter day has now passed. And for most tenants, the payment of that quarter is an even bigger issue than arranging payment of the March quarter.
11:30
Given that premise system effectively been closed for 2.5 minutes, the government has recognized this, and in order to protect tenant businesses, particularly those on the high street, and in an effort to preserve the economy in the long term, a variety of initiatives have very recently been introduced to restrain landlords from taking formal action to collect overdoing rent in the short-term. I will take you through some of these, so you are aware of the current restrictions. So, one of the first measures introduced by the Government to Safeguard UK businesses was to prevent landlords from forfeiting commercial leases.
12:05
Section 82 of the Coronavirus Act provides that landlords are unable to forfeit leases as a result of the non-payment of rent. Initially this related to the March quarter, and landlords could not forfeit commercial lease until the 30th of June.
12:20
However, the government has since extended this to also cover the June quarter, and landlords cannot forfeit commercial lease now until the 30th of September at the earliest. And this could be extended further by the government.
12:35
That was right to forfeit however, has not been abolished completely. It has simply been deferred until the first of September 2020. So also action can be taken now to forfeit landlords. Could forfeit the 30 to September if rent is still not paid?
12:51
Landlord should also remember the current restrictions on forfeiture do not bite if the tenant is committing the breaches at the least such as subletting Sharing possession or the use so, if landlords are experiencing other issues with their tenants then they won't be able to consider forfeiture as an option. So, get in touch with your advisors to discuss this further.
13:12
In any event, it seems to us that forfeiture will only be a viable option. If a landlord wants to terminate for a breach other than for the non-payment of rent. If a landlord has the intentions for the premises, such as redevelopment, an alternative use, or if there is a new incoming tenant that's interested in the premises.
13:29
Otherwise forfeiting, Elise may just result in empty premises with no long term rental income and a difficulty to relax units in in, in the current market.
13:39
So, another option a landlord can consider to recover sums is the commercial rent arrears recovery process.
13:47
So, this process, which I will call cry from now on as it is a bit of a mouthful, consists of instructing bayliss to serve a notice of enforcement on a tenant and it will give them seven clear days to pay to some surrendering.
14:02
If systems aren't paid than the bailiff can enter into the tenant's premises and take control of their goods.
14:08
So, as you can say, cry is a persuasive method to seek the curve Reverend do you see the threat of by diffraction?
14:14
However, on the 23rd of April 2020, the government announced that it would restrict the use of the crop process. And then, again, on the 19th of June, it's going to restrict that process even further.
14:25
So the most important change brought about by those regulations is that a landlord is only able to utilize craw if there is 189 days worth of friends, outstanding.
14:37
The law previously allowed landlords to utilize cry if only seven days of rent was outstanding. So this has been extended significantly.
14:46
This will have the biggest impact on lateral to charge rent on a monthly basis as they will now only have the option to craw. So when, when, 189 days of rent, that comes outstanding, rather than the 30 or 31 days at the east to, this essentially equates to the entire march in June quarters and a few days into the September quarter.
15:06
So landlords will, therefore have to wait for six months of rent to accrue before they can utilize craw.
15:13
Landlord should also be aware that tenants could pay a small amount of rent, so to bring the outstanding sum for rent below the 199 days. And if tenants do this and say only 180 days of renzi's owing as a result, the landlords will not be able to utilize crop.
15:30
However, even with this restriction, craw will be the goto Recovery Option choice for landlords, given the restrictions that are being posed on forfeiture and statutory demands, which I will talk about next. But shops now re-opening the threat of craw, may persuade tenants to make some payment to avoid bailiffs coming onto their premises.
15:50
So after the government restricted the use of forfeiture for non-payment of rent, many landlords decided to see because we have rent through issuing a statutory demand and presenting a winding a petition. The government, however, sought to restrain these tactics by introducing a ban on the use of statute demands and wandering opticians, wherever company cannot pay its bills due to the impact of coronavirus on its business. This has been set out in the corporate insolvency and governance bill.
16:16
This was originally introduced to last until the 30th of June, but as you probably guessed it, further amendment was pushed through Parliament and the bill, in its entirety, received royal assent on the 29th Pitching. The amendment has now been extended, said the restrictions in place until the 30th of September 2020.
16:35
So in a nutshell, the bill provides that landlords will not be able to do the following.
16:40
They cannot rely on the stature demand that has been served on tenants between the first of March until the first until the 30th of September 2020.
16:48
They will not be able to rely or present on a winding optician between the 27th of April until the 13th of September.
16:56
Unless the creditor can prove that it has reasonable grounds to believe that the coronavirus has not had an impact on the company in debt, or the company was in any event unable to pay its debts, notwithstanding the impact of coronavirus on the company.
17:11
So the court will not order a winding up order unless it is satisfied that the grounds that I just mentioned have been met.
17:19
It seems to stifle that, while staples restrictions are providing short-term relief for tenants, this is just delaying the inevitable.
17:27
Once the restrictions expire on 30 September, tenants will find themselves having to meet the ongoing rental obligations, as well as K, the race for any sums not paid for the last few months.
17:39
And it's important to get this across to your tenants, because if they do not seek to reach an agreement with you, you will be entitled to see recovery of friends at a later date. It has not been extinguished in its entirety.
17:51
It's not all doom and gloom for landlords. There are other options available to you now, which you can use as leverage to reach an agreement with your tenant.Â
18:00
So, landlords can initiate money claim against a tenant, if they refuse to pay rent and this is essentially taking action. It is true that there are delays the court system at the present time, due to the need to social distance and the backlog of cases which courts that have been unable to deal with during lockdown.
18:17
However, the threat of issuing a letter before action may persuade a tenant to keep engaged with you or pay something towards the rent housing.
18:25
Whilst there are delays with the court process, this won't last forever, And at least while you initiating your claim, you're putting yourself head of the queue as the claim progresses.
18:35
Even once you've served a letter before action to try and encourage payment, you do not have to vanish Court proceedings. It would still be your choice and we can consider Wiki whether this would be a good option in your circumstances. So, for example, the mouse or they may be relevant as the abstractions on the ability to recover your costs if your claim is less than £10000, but we can consider this further with you.
18:59
Another option is when deposits. They are not subject to any restrictions introduced by the government. So, if the retirement deposit, you may be able to seek to drawdown from the deposit to cover unpaid rent. Of course, we will need to check the terms of any rent deposit, and then whilst any drawdown will reduce the sum in the deposit, if you acquire that money now to pay any liabilities upstream, you may consider that it is worth drawing it down now.
19:25
However, if a tenant is struggling, it is unlikely that it will be able to top up the rent deposits swiftly. As such, until the current restrictions are lifted on recovery in it and enforcing tenants to top up the deposit, you will be unable to force them to do so.
19:44
Another option is guarantors. This can be very good leveraging your discussions with tenants because guarantors of Lacey's could be parent companies or individual Directors. And they will not want to be the subject of a reaction.
19:57
As such, check whether there is a guarantor. And if there is, you could threaten recovery action as against the guarantor.
20:03
And if a tenant doesn't pay as such, check whether the RESA guarantor. And if there is you could threaten recovery action as against the guarantor if a tenant doesn't pay.
20:15
While sometimes the recovery options may be restricted, as upset are above, this is another entity which you to engage with to encourage payment and reach agreement.
20:24
And then a final tactic you can employ now is the Code of Practice, which James mentioned earlier. So the 19th of June and the government introduced a new code of practice for commercial property relationships during the coronavirus pandemic. And we have put a link on the slides there to be able to view that quickly.
20:42
So we'll also cody's monitoring A represents a non binding framework for best practice in relation to someone's PayPal into commercial leases. However, you can seek to utilize the code to your advantage as expressly state that tend should continue to pay their rent or as much of it as they're able to pay.
21:01
It reinforces the fact that that rent, it reinforces the fact that tenants remain liable for their rent arrears unless a negotiated settlement is reached.
21:12
The code also encourages tenants to continue to pay service charge and insurance in full.
21:18
Accordingly, tenants cannot use the code as a means of seeking to avoid making any payments to landlords, and landlords should remind them of this.
21:27
It is understandable that landlords are concerned that recent legislation legislative measures have ignored the impact of reduced rent recovery on smaller corporate landlords and those meeting loan or rent payments of the Rhone, the suspension of rent payments by significant number of tenants has put all landlords into huge financial pressure.
21:46
So, in a nutshell, our top action points for landlords now are: continue to negotiate with your tenants.
21:53
Reaching a negotiating position will be better in the long term, as this will assist with income generation going forward and avoid any cost taking a curve reaction going forward.
22:03
Also, consider some of the creative solutions that James has talked about today, it's not just to read about a rent holiday or rent deferral consider lease extensions insertion of a landlord break or agreeing some sort of private mortgage.
22:17
You should also explore what other leverage you have. Is there a renter pausing? Is there were guarantors of tenant?
22:23
Or are there any of the breaches you can consider taking action for? This might give you an edge in negotiations.
22:30
And if all the above fails, consider your recovery options. The court process is still available to you, as well as craw.
22:37
Our real estate disputes team have to scale and expertise to consider your position with you and assist you with your negotiations with your tenants. So please do get in touch with us and we can help you formulate those negotiations.
22:49
So thank you for listening today. That brings us to our webinar. And we will just have a look now to see whether you had any questions throughout the session. And I think something has come in, so I'll pass this over to James to do with this thing.
23:06
First question is, Is there a risk for landlords documenting ranking sessions that they could lose the benefits of contents guarantors?
23:14
The answer is a variation of at least, kind of certain circumstances result in the release of guarantors which would be nice for landlords.
23:21
That's really important. The landlord's we taught the benefits guarantors.
23:24
Carefully consider how any new arrangements are documented, with there being a technical variation of the lease, or if there is a technical variation.
23:33
The tenants, gerunds always not prejudice in any way, such that they are released, can help landlords achieve this and protect my position just to do you have any further questions?
23:44
Yes, I think we've got a couple more, but I think we have time just for one more question, so let's get that out now. So my tenant has failed to pay the March and June quarter rent. However, is now come to my attention that they have sublet part. The premises to the company, Can I take steps to forfeit the legs? So, the short answer is yes, and this is because the tenant may have committed a breach of the lease other than the non-payment of rent. So the tenant may have committed an aviation breach by allowing a third party to occupy part of the premises without your consent. Wound each review the terms of your lease, which can send over after the webinar. But if you are able to forfeit, we would first need to serve a section on for six. notice confirming the breach complained of.
24:28
The tenant will then have a reasonable period to remedy the breach, circa several, 10 days. And if no responses received or no remedial action taken by the tenant, we could then seek to re-instate the premises after that period.
24:40
So please do get in touch with us after the webinar, and we can discuss that with you further.
24:45
So, I think that's all we've got time for today, and I hope you found it useful and relevant in the current circumstances. But if there was something you would like further information on or have a specific query on any matter that you'd like to discuss, please do let us know, and we'll be happy to help. In the meantime, we've launched a free helpline, giving you direct access to senior team of experts, fault free legal guidance over a 20 minute telephone or video call. Details on now on-screen if you'd like to book a session.
25:12
And finally, please do visit our Smart undermanned pages to access recordings of all webinars that we've done over the lockdown period. As well as ... Talks. Please join in and I'll conversation on LinkedIn and Twitter. All say, thank you for joining.
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