Practical steps and Government reliefs for the real estate sector

The current coronavirus pandemic is accelerating and undermining many businesses’ key trading assumptions. No business is immune, with the real estate sector feeling the affect directly and through their tenants’ financial positions.

From a practical point of view, businesses should monitor their key indicators. With their own businesses and those of their tenants severely disrupted, the monitoring of cash is key. 

It is likely that some tenants, some of whom have had their businesses closed, may not pay their rent in time, with banks still requiring interest to be settled. Those in the construction sector may find that their sites will be closed for several weeks, impacting cash flows and putting strain on their business. It is therefore essential that the position is monitored and stakeholders are engaged with.

Considering the volatility of the market and the wider economic uncertainty, accurately valuing assets and portfolios is proving challenging with valuers inserting ‘material uncertainty’ clauses in their valuation reports, to give themselves leeway. The longer-term issue with commercial property landlords is that they cannot assess asset performance and make clear investment decisions, meaning that we are expecting investment levels requiring loan finance to be very low in the short-term. Any change in property values because of the coronavirus crisis may severely affect loan to value (LTV) banking covenants.

Commercial landlords need to ensure that they are paying interest to their lenders. In the event of a cash shortfall because of unpaid rent and a possible interest cover loan covenant breach, landlords could be subject to significant penalties, to add to the rent shortfall they will be experiencing.

Read our five areas to focus on when negotiating with your real estate lender here.

Here’s a summary of the resources and Government support specifically available to the real estate sector in addition to the general provisions available to all entities.

Eviction bans: residential property

Emergency legislation has been passed to suspend new evictions from social or private rented accommodation. This is welcome relief for tenants in these types of accommodation. 

Further guidance can be found here.

Eviction bans: commercial property

Commercial tenants are similarly being protected from eviction. Until 30 June, no business will automatically forfeit their lease, nor will they be forced off their premises, if they miss a rent payment.

It is important to note that this is not a rental holiday, as all commercial tenants will remain liable to pay the full amount in due course.

Further guidance can be found here.

Business rates holiday

A business rates holiday has been announced for the 2020/21 tax year for retail, hospitality and leisure businesses in England. Properties that will benefit from the relief will be occupied hereditaments that are wholly or mainly being used:

  • as shops, restaurants, cafes, drinking establishments, cinemas and live music venues;
  • for assembly and leisure; or
  • as hotels, guest and boarding premises and self-catering accommodation.

It should be noted that there is no empty property relief available to landlords when these types of properties have been vacated.

Further guidance can be found here.

VAT deferral

If landlords are getting requests from commercial tenants to delay rental payments or request rent free periods, there could be significant VAT issues. There could be further VAT implications if, for example:

  • you agree to a rent holiday in exchange for a change to the contract or an extension of the lease – this could be seen as a barter transaction and create a VAT liability.
  • the tenant is partly exempt and connected to the landlord, there could be further implications/complications.

Discover practical steps to take with this issue for commercial properties here and residential properties here.

Government support

The key loan facilities for real estate businesses are:

The available grants available are:

  • up to £25k for certain sectors depending on rateable value of their property;
  • rates holding for 2020/21 for certain sectors;
  • support to retain jobs of 80 per cent on wages up to £2,500 pm; and
  • reclaim for of two weeks’ Statutory Sick Pay.

A full list of practical steps to take following Government measures to helps businesses can be found here.

For more information please contact Howard Freedman.

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