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 Kerry Blackhurst

In a word, yes.

The authority of the Executors to deal with the property comes from the Will and then is confirmed by the Grant of Probate. Where there is no Will, or valid appointment of Executors, then the authority comes from the Grant itself.

But there are some important considerations

  • Although you can exchange without the Grant of Probate, you will need the Grant to register at the Land Registry so any exchange should therefore be conditional upon Probate being granted and the contract should stipulate a completion date for a set number of days after the Grant of Probate has been issued.
  • As with all conditional contract situations you should consider other relevant issues. For example, a Grant of Probate may take a lot longer to receive than anticipated so the parties ought to include a suitable backstop date in the contact. The buyer will have considerations about its mortgage expiry and even valuation expiry which need to be factored into any time period provided for the Grant to be obtained.
  • Remember also that where a deposit is paid on exchange, where completion is delayed, that deposit will be tied up and may prevent the buyer being able to pursue other property transactions.
  • Exchanging subject to a Grant of Probate is unlikely to work where the buyer is in a chain as a fixed date for a completion is not going to be achieved.

It is also worth noting that in some limited circumstances there is an exemption for some or all of your SDLT where a property is purchased from Personal Representatives.

So, in summary, yes you can exchange before you receive a Grant of Probate is received, but plan ahead.

Kerry Blackhurst is head of our Private Client team.  Kerry works closely with our property team and provides advice to clients on a variety of estate planning matters.

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.