PropertySep 29 2020

Does commercial property have a future?

  • Describe some of the problems facing commercial landlords at present
  • Describe some of the problems with the rent moratorium
  • Explain how to find a good property investment
  • Describe some of the problems facing commercial landlords at present
  • Describe some of the problems with the rent moratorium
  • Explain how to find a good property investment
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CPD
Approx.30min
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Approx.30min
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CPD
Approx.30min
Does commercial property have a future?

There has been much concern in the investment community about the value of commercial property, and whether it is viable in the long-term, given the pressures retail and office space is under with remote working, and the huge decline in footfall over the past few months.

But perhaps before looking at market pressures it is worth assessing the legal context providing the background for much of the debate over rent arrears, moratoria and such like.

The basic concept of a lease of commercial property as an investment product is the contractual bargain by the occupant tenant to pay the owner landlord a rent on a periodic basis.

Failure to make such payments on time puts the tenant at risk of losing the lease (by a process of termination by the landlord known as ‘forfeiture’) or being made insolvent by the landlord. In addition, a landlord could also legally confiscate and sell assets at the let property to put towards the unpaid rent by way of a process known as ‘distraint’.

The pandemic is distinct from previous crises in that it is not the virus itself which has damaged the commercial property market, but the measures that the government has introduced to combat the spread of the virus

The regular payment pattern of rent over a relatively lengthy period of years coupled with the ability of a landlord, generally, every five years during that term to review rent payable on an upwards only basis, has rendered investment in commercial property popular and, relatively, safe.

In an effort to mitigate the consequences of the Covid-19 pandemic, the Government has intervened quickly and materially to impose regulation on the, previously largely unregulated economic relationship between landlords and their tenants.

This is in marked distinction to the state reaction to the credit crisis in the late 2000s, possibly the nearest comparable in terms of the magnitude of disruption to the property market, outside wartime.

During the period of that crisis, the commercial property market was by and large left to its own devices by government.

National lockdown

The pandemic is also distinct from previous crises in that it is not the virus itself which has, certainly in the short term, damaged the commercial property market, but the measures that the government has introduced to combat the spread of the virus.

The imposition of a national lockdown had obvious and foreseeable consequences for those who rent in order to trade.

The forced closure of all but essential business and leisure premises meant a total and immediate loss of income to tenants leading to a commensurate crippling effect on the ability of most tenants to meet their contractual rental commitments.

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