The start of October heralds a gentle resumption of winding up petitions against companies being available but not if you are a landlord!

The most notable change to the pre-Covid position is that there is a temporary increase in the amount that must be owed from £750 to £10,000.  In addition you will not be able to present a petition before you have sought proposal proposals for payment from the debtor and given them 21 days for a response. The government clearly is seeking to protect small businesses by giving them every opportunity to negotiate their way out of financial trouble.  The Government has made clear its intention to continue protecting the two types of debtors that have been hit particularly hard by Covid-19, small businesses and tenants.

As a result, unfortunately, landlords will not yet in reality benefit from the re-introduction of winding up petitions. This is in line with the continuing suspension of forfeiture and the effective suspension of Commercial Rent Arrears Recovery (“CRAR”), by requiring that the minimum net unpaid rent that must be outstanding before CRAR can be used is 554 days.

Landlords need to be particularly aware of the new concept of an “excluded debt” – one for rent that a tenant is liable to pay under a relevant business tenancy in England and Wales, which is unpaid by reason of the financial effect of coronavirus.  It would seem the only chance a landlord has of bringing a successful winding up claim against a tenant (or corporate guarantor) would be if the landlord can prove that the rent is unpaid because the tenant is taking advantage of UK Government policy to help with its cash flow (remembering arrears still must be more than £10,000 and the debtor must be given 21 days to offer a payment plan). Seemingly landlords face an impossible task of proving that Covid has not caused a tenant’s financial difficulties. Good luck with that one!

It is worth noting that the restrictions do not, though, give protection to individual debtors from personal statutory demands and subsequent bankruptcy proceedings.  However, with the current backlog for hearing petitions, this solution may be not as efficient as it once was.

Avi Barr is a partner at BBS Law specialising in Commercial Property and Property Finance and is head of the London office.  Avi can be contacted by email here.

By Matthew Owen

Retail Prices Index (RPI) linked rent review clauses have become more common in recent years, adopted in residential long leases following a pushback against fixed ground rent increases and in commercial property leases as a welcome alternative to provide some rental growth.  With Covid19 likely to depress values particularly in the retail sector many landlords will be looking at RPI increases to create some assurance of steady rent increases.  However, this week could spell the end for RPI.

RPI is a measure of inflation utilised throughout the UK.   However, the ongoing Government consultation may mark the beginning of the end of the RPI liked rent review.

A House of Lords report into the RPI highlighted concerns with the way that the UK Statistics Authority (UKSA) calculate RPI, specifically that the divergence in the rates between RPI and Consumer Prices Index was resulting a difference of 1% per annum. The report contained the following proposals:

  • The publication of RPI should cease; and
  • During the period which the legislation is being negotiated RPI should be aligned with the Consumer Prices Index including owner occupiers’ housing costs (CPIH).

In response to the publication of this report, the Government announced a consultation with UKSA, which commenced on 11 March 2020, to review the proposed alignment with the CPIH and other technical matters concerning the implementation of the proposal.  The result of the review is due this week and it is likely that the RPI will be discontinued.

Clearly any changes to the way RPI is calculated would have wide-reaching consequences for property rents potentially reducing the increase in property rents by 1% annually.

Abolishing RPI will cause serious legal concerns potentially resulting  in some rent review clauses becoming redundant.  It is certainly not too early to try and do something about it.

While the implementation for the alignment of RPI with the CPIH index is targeted to take place between 2025 and 2030 it is important to ensure any index linked rent review clauses are drafted with the change in mind. Properly drafted leases should include the replacement of the index where RPI is abolished or a material change in the calculation of the index. Another complimentary approach where an alternative index is going to be adopted would be to introduce a “cap and collar”- which dictates the minimum and maximum increase, which would prevent Landlord losses in the event that RPI is significantly reduced.

Despite the RPI alignment causing apprehension in respect of existing leases, it may well be beneficial in new leases for alternative interest indices, such as CPIH, to be adopted to replace RPI for index-linked rent reviews.

With a first rent review in a commercial lease likely to be five years’ away it is worth paying some attention to the basis of review when negotiating your terms.

Matthew Owen is a solicitor in our Commercial Property team.  If you wish to discuss this article or any aspects of commercial property transactions you can contact Matthew by email or phone (0161 302 8399).  You can download a PDF of this article here.

By Daniel Berger

“BBS Law’s service to help landlords struggling with their rent recovery so that they obtain the best possible support from their lenders”

The day before the March 2020 quarter day I wrote an article about how to try and deal with mass non-payment of rent. Since then Landlords have many stories to dine out on (if you could go to a Restaurant) about which tenants have asked for the more outrageous rent concessions.

Clearly all parts of the economy have suffered under the handbrake that has been yanked on by global lockdown, and there are many tenants that deserve sympathy, others less so. We are now mid-way through the quarter and Landlords are looking to the June quarter day with trepidation.

“It is likely that even fewer tenants will pay rent on the June quarter day as the Government has given more green lights to them to stop paying rent.”

The extended measures to protect tenants beyond the three month moratorium brought in during late March include:

  • Before any winding-up petition is made based on claims that the tenant is unable to pay its debts, must first be reviewed by the Court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the tenant’s inability to pay is the result of COVID-19. Which landlord fancies spending time and money getting to the Court to explain that one !
  • Legislation will also be brought forward to prevent landlords using commercial rent arrears recovery (CRAR) unless 90 days or more of unpaid rent is owed
  • The new legislation to protect tenants will be in force until 30 June, and can be extended in line with the moratorium on commercial lease forfeiture. In all likelihood it will be extended

A link to the full Government release is here: https://www.gov.uk/government/news/new-measures-to-protect-uk-high-street-from-aggressive-rent-collection-and-closure

So here you are 7 weeks into lockdown and looking at a significant arrears schedule that is likely to get substantially worse come the end of June. Most commercial landlords will have some loans secured on the now non-income producing property, and whether capital and interest, interest-only, quarterly or monthly it is now impossible to avoid a repayment date passing without having had the rent hit the bank account. Prudent landlords may have left sufficient funds in the rent receivable to service the loans for a few months. It would be rare to find such accounts bulging though.

So you look around and see the Government policy seemingly stacked against landlords and other policies and generous financial help for tenants in terms of furlough for non-working staff, rates relief, business grants and loans on generous terms. Where can the landlord seek help. So far, we can’t find any. Landlords are being encouraged to “talk to your tenants”, “be reasonable”; Communities Secretary, Robert Jenrick, says: “We understand that landlords are facing their own very serious pressures and are concerned about their position with lenders. We are working with banks and investors to seek ways to address these issues and guide the whole sector through the pandemic.”

It seems the only help the landlords are getting is at the discretion of the lenders. When speaking to many commercial property clients we are seeing very mixed responses. Interest holidays are simply not available. Capital repayments can be suspended for 3 or even 6 months if you are with certain banks and you fit their “criteria”. We are seeing some banks giving no leeway at all, and that old phrase of “selling umbrellas when the sun is shining” seems apt.

The retail banking industry providing residential mortgages has given 2 million mortgage holidays providing some temporary relief to squeezed and worried householders. We are not seeing this on the commercial side at all.

BBS Law Ltd can help you in reviewing your banking documentation and assisting you with documenting any arrangements you come to with your lenders. We also feel we are well placed to assist you in direct negotiations with banks, helping you present your position in the most favourable of manners and being able to advise what concessions more helpful and flexible lenders are providing.

Our  commercial property, commercial and secured lending teams at BBS Law Ltd for advice on your situation and how we can help you at this most challenging of times.

Please contact Daniel Berger, Dov Black or Avi Barr if you would like further assistance.