Biz Extra

Your questions on the upcoming challenges in the commercial property market answered...

By Staff Reporter [email protected]

Published: August 30, 2021 | Updated: 31st August 2021

Commercial Property Associate Fiona Knight answers your questions on the challenges ahead for landlords and tenants of retail and office space.

What challenges does the eviction ban create?

The biggest issue in the current market, is the commercial eviction ban. Commercial evictions are currently suspended until March 2022.

As with the residential equivalent, this measure has been a lifesaver for thousands of commercial tenants, whose businesses have ground to a halt as a result of Covid restrictions.

Many commercial landlords, however, will have received no rental income from some of their sites for almost two years.

As we start to ‘get back to normal’, two main issues will arise:

  1. Once landlords are able, should they press ahead with evictions, knowing it may be difficult to find new tenants with the market as it is?
  2. Will tenants be able to pay their rent (and any arrears they have potentially built up) and will rates be effected?

What will happen after the eviction ban ends?

Sadly, it seems inevitable that the change in trading conditions and accumulation of rental arrears and other debts will lead to numerous commercial evictions once the ban is lifted.

Whilst we would always support exploring alternative options, such as those set out above, there will be many cases where eviction proceedings are necessary and unavoidable.

In these cases, our specialist property litigation team can offer pragmatic advice on the best way to proceed.

What does the end of business support measures mean for the commercial property market?

As well as the end of the ban on evictions, many businesses have been supported with the following measures, all of which end soon:

  • The furlough scheme (ending in September 2021)
  • Business rates relief (reduced in June 2021, ending March 2022)
  • Deferred VAT payments (being repaid by many businesses now)
  • Coronavirus Business Interruption Loans (interest free period ending soon)

As these measures come to an end, and businesses begin to feel the strain, many will have to decide whether they are able to continue trading. Insolvency and administration rates are very low at the moment, and it is anticipated that these will rise sharply as support measures are withdrawn.

What should commercial landlords and tenants do to prepare for the withdrawal of support measures?

Landlords and tenants should be having discussions with each other well in advance of these dates in order to discuss options and make plans.

Although some landlords and tenants have worked collaboratively for mutual benefit during the pandemic, others have had difficult relations. However the opposing interests of landlords and tenants will inevitably need to be balanced to secure an acceptable compromise for both parties.

Landlords and tenants need to fully understand their existing lease terms as well as options for lease variations in the changed market so that settlements can be reached before either side look to terminate leases.

What role will Covid clauses have going forward?

Lease terms are far fairer than they were historically due to legislation and shifts in the market, particularly to shorter leases, but there have never been specific clauses included to cover pandemics.

What if you cannot access or trade from the premises due to Government regulations? What if you need to make alterations to the premises in order to be able to operate but the landlord will not agree? The lease is not automatically varied.

Although an evolving area in which a ‘market’ consensus between landlord and tenant does not yet appear to have emerged, both parties need to understand the options available.

We’ve written a full article dedicated to understanding Covid clauses, which can be read here.

What advice can you give me?

Fiona Knight says:Whether buying or selling, or granting or taking a lease of commercial property, it is a complicated area and even more so if the relationship breaks down.

“Whilst the focus of any business has to be its day to day operation, where physical space is required, decisions made relating to commercial property have substantial and long term effects on the overall health of any business which the pandemic has emphasised even more.

“Early, specialist and commercial advice is critical in a fast-moving world so that you can make the best decisions for your business. All of this is available at Frettens so that you can secure the most appropriate, timely and cost-effective solution to your needs.”

In the full article, we’ve answered questions on break clauses, permitted development rights and the transfer/assignment of commercial leases. The article can be read here.

Commercial Property Solicitors

If you have any queries following this article, please get in touch with our bright Commercial Property team for expert advice.

We offer a free initial appointment to all new clients. To get in touch with our bright lawyers simply call 01202 499255 or visit our get in touch page.

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