Inspiring Business by Sharing Success

LANDLORDS: WHEN IS ENOUGH ENOUGH?

LANDLORDS: WHEN IS ENOUGH ENOUGH?

With more than 60% of landlords losing rental income during the pandemic, it is no surprise that many are feeling the pinch. Catherine Rickett, debt recovery manager, and Bukola Obadun-Craigs, partner, of Roythornes Solicitors consider the impact of Covid-19 and how to avoid cash flow problems.

Despite the ending of many Covid-19 financial support systems, assistance with residential and commercial property rental arrears is set to continue as many tenants continue to feel the effects of the pandemic. With a reported one million tenants building up rent arrears since March 2020, according to the National Residential Landlords Association (NRLA), it’s unsurprising that protective measures, including Breathing Space, have been extended.

But what about landlords?

Bukola said:

“A number of regimes and restrictions have been put in place since the pandemic hit but Practice Direction 55C – part of the Coronavirus: temporary provision in relation to possession proceedings – is likely here to stay – at least until next month, with the review date being moved a number of times already.

“However, landlords are struggling to cope with the increasing legislation, particularly where multiple pieces of legislation overlap. This, combined with many tenants struggling to identify their rights, creates an uncollaborative approach between tenant and landlord, which can lead to issues.

“This is particularly true of commercial property landlords within the entertainment industry – an especially hard-hit sector. Two useful high court decisions, Commerz Real Investmentgesellschaft mbh v TFS Stores and Bank of New York Mellon (International) Ltd v Cine-UK Ltd, indicate how the courts will rule where Covid-19 defences are raised in relation to rent arrears.

“In both cases the courts rejected the defences raised by the tenants and gave summary judgment. Both stated, on multiple occasions, that these were detailed commercial contracts with provisions for allocating the risk between parties and there was the option, had the tenants wished for them to negotiate wider terms, for the cessor of rent clause to arrange business interruption insurance. Possession and enforcement action therefore remain the only viable economic option available to landlords for rent arrears and other breaches of tenancy.

“There have been many regulatory and statutory changes made in response to the pandemic that have impacted the process of seeking possession and the enforcement of possession orders. Non-compliance from landlords will inevitably delay claims or result in the claim being struck out. To avoid this, landlords must be up to date on statutory notices and give the correct notice before issuing a claim for possession.

“There continues to be restraints on the speed in which action can be taken in comparison to pre-pandemic procedures, but things are slowly returning to normal – in particular, on 1 October 2021 landlords can look forward to notice periods for possession reverting to pre-Covid time scales.”

Another piece of legislation that is here to stay, is the Debt Respite Scheme, known as Breathing Space. This was introduced earlier this year to allow struggling debtors time to ‘breathe’ and time to sort out their financial struggles.

Catherine said:

“Breathing Space – which falls into two categories: Standard Breathing Space and Mental Health Crisis Breathing Space – gives debtors time to get their house in order and, if necessary, resolve any mental health issues before tackling debts.

“We should all stand together to help those struggling with mental health issues and the Debt Respite Scheme does just that. It prevents landlords from pursuing tenants who have fallen into rent arrears but what if landlords are also feeling the pinch?

“My top tips in this situation are to ensure that you have a written agreement of what the rent will be and when it is due, make it easy for your tenants to pay as well as know your tenant and communicate with them. Offer payment plans for those who are struggling and have clear procedures if they fall behind on rent again. Wait until the legally required time and then chase your tenant straight away. Whoever shouts the loudest usually gets paid first.

“I’d also highly recommend keeping a ‘cushion’ of three months operating expenses to help alleviate that pressure of rent arrears. This may not always be feasible but is certainly best practice if possible.

“As with every area of your business, you need to be pro-active, and ensure that you know the rules about pursuing money owed if it gets that far. The Debt Respite Scheme has been introduced because of the pandemic but has been a long time coming. By ensuring that you are following the correct processes, you can be sure that if the matter proceeds to court, you cannot be criticised, and any claim will proceed smoothly.”

For more information visit www.roythornes.co.uk or follow @roythornes on Twitter.


< Back