Buy-to-let owners and commercial landlords are facing significant challenges as a result of the coronavirus crisis. What support is available for landlords and their tenants?
The financial impact of the coronavirus crisis and the UK’s lockdown policies have meant it has become much more difficult for many people and businesses to pay their rent.
The government has set out a number of support measures for individuals and companies to help them meet vital bills and protect their tenancies, but many of the country’s landlords are nonetheless likely to be affected.
Private tenants who have been furloughed or laid off could struggle to cover their monthly rent, while companies who have been forced to suspend trading are also likely to face significant cash-flow problems.
Ben Quaintrell, founder and managing director of lettings agent My Property Box, says that many in the industry initially feared the lockdown measures would have serious financial repercussions for both landlords and tenants.
“However, the ability of those tenants already on benefits to pay their rent remained unchanged and was even bolstered by chancellor Rishi Sunak’s decision to increase standard Universal Credit by £1,000 over 12 months,” he explains.
“The main issues have arisen around the support available to those classed as self-employed, those who have suffered an income reduction, or the length of time those making a new benefit application must wait to receive payment.”
Meanwhile, commercial landlords may benefit indirectly from state support available to their business tenants, such as the ongoing business rates holiday as well as grants for companies operating out of shared workspaces. Below, we look at how the new rules to support and protect tenants could affect landlords across the UK, as well as the support available to property owners.
The government has worked with Britain’s lenders to ensure that individuals affected financially by the pandemic can temporarily suspend their monthly mortgage repayments, and this applies to landlords with buy-to-let mortgages as well.
“It’s not surprising many commercial landlords are already being approached by tenants looking to agree reduced rents beyond 1 July. Landlords will have tough decisions to make”
Steven Percy, partner, SAS Daniels
While these holidays were initially for up to three months, at the end of May the government announced that payments could be stopped until October if necessary, allowing for six-month breaks.
According to the National Landlords Association (NLA), landlords can only apply for a mortgage holiday if a tenant has been directly or indirectly affected by coronavirus – and borrowers must be up to date on their loan repayments when they apply.
Quaintrell says: “The introduction of the mortgage holiday for landlords did cause some confusion, with some not realising that the missed payments are added to the balance. This means future monthly payments and the total amount of interest paid will rise.”
Landlord Loans: Scotland
In May, the Scottish government introduced the policy of offering interest-free loans to landlords whose tenants are experiencing financial difficulties. A £5m fund – known as the Private Rent Sector Landlord Covid-19 Loan Scheme – has been set up to cover up to 100% of lost rental income.
The scheme is only available to landlords who are not classed as businesses, and to be eligible you should have no more than five rental properties.
To date, there are no similar loan schemes in other parts of the UK.
Changes to Repossession Rules
For landlords and tenants, one of the most significant law changes since the pandemic took hold in the UK has been a suspension of evictions. The notice periods that landlords are required to give tenants in England and Wales have been extended in most cases to the end of September 2020, and all current possession proceedings have been held up until the end of June at the earliest.
This means that at the moment, even if tenants are unable or unwilling to pay rent, landlords will have to wait to evict them.
In Scotland, the national government has introduced new laws which will have a similar effect until the end of September.
“The government’s three-month ban on evictions, although well-intentioned, has meant some landlords have been left at the mercy of unscrupulous tenants who simply refuse to pay their rent, knowing that they cannot be lawfully removed,” Quaintrell says.
New legislation applies also to protect business tenants with commercial agreements, says Steven Percy, partner at solicitors SAS Daniels. “Under the Coronavirus Bill landlords in England, Wales and Northern Ireland are prevented from ending or forfeiting a commercial lease should the lease contain a forfeiture clause and the tenant be in breach of its terms. Typically, this might mean them failing to pay their rent and associated costs such as service charges, utility bills or insurance.
“Although a welcome relief to many tenants who have been struggling financially, there is a strong likelihood that we could see many issues arise once the forfeiture period comes to an end on 30 June. The government could, of course, extend this date beyond 30 June.”
Percy adds: “It’s not surprising many commercial landlords are already being approached by tenants looking to agree reduced rents beyond 1 July. Landlords will have tough decisions to make. Do they agree to new terms or evict a tenant and risk having an empty property?”
In Scotland, the notice period that commercial landlords must give after non-payment of a lease has been increased from 14 days to 14 weeks.
The government says that regardless of social distancing rules, landlords are still required to meet their obligations in terms of property maintenance, for example. This may mean that landlords need to work out how they or contractors can visit a property safely while tenants are present.
Stephen Campbell, senior health and safety consultant at RBS’s Mentor service, says: “Landlords are responsible for ensuring contactors are competent and any checks should include the competence with respects to coronavirus to ensure contractors work within government guidelines.
“Maintenance and repair work can be carried out during the pandemic in line with UK government requirements.” Campbell adds that the government has prepared a guide on working safely in other people’s homes.
Dealing with Tenants in Difficulties
While landlords’ associations in the UK stress that tenants who can afford to continue paying their rent should do so, there is also recognition that landlords may need to be sympathetic when it comes to those facing financial difficulties.
According to the NLA: “It is sensible to be proactive in this situation. Contact your tenants without physically meeting with them. You should use this opportunity to discuss their financial circumstances, whether they are employed or self-employed, and whether they are likely to have to self-isolate.
“If they are likely to struggle in paying the rent, you may be able to assist them with guidance or you may discover that you should apply for a mortgage holiday.”
However, the NLA points out that any rent that is deferred as a result of the pandemic will still be expected to be paid back at a later date.