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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Approx.30min
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CPD
Approx.30min
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CPD
Approx.30min
Does commercial property have a future?

In a perfect storm of timing, the lockdown was announced only a few days before the occurrence of one of the quarter days on which the vast majority of tenants would be required to pay their landlords one quarter of the annual rental payable under their leases.

Left unchecked, the consequent tsunami of tenant default would have been met with a brutal wave of enforcement action from landlords seeking to recover unpaid rent by forfeiture, insolvency proceedings and distraint.

Given the self-evident proof of breach by non-payment of rent, the potential result of this would have left all but the most cash rich tenants with little or no choice but to pay the arrears or submit to the consequence of their failure to pay and lose their premises. 

Allowing that to happen would have had a materially adverse effect on the commercial property market. Large swathes of such properties would have become empty at a time when finding a replacement tenant would have been all but impossible.

Government moratoria

Consequently, in March the Government introduced moratoria on the institution of forfeiture or insolvency proceedings by landlords to recover rent (together with similar restrictions on the exercise of distraint).

These may, in the future, be viewed as a sensible and proportionate response to a potential catastrophe.

However, in the short to medium term, the introduction and the subsequent extension of the moratoria until the end of the year are having an effect on landlords who are growing increasingly restive. From their perspective the moratoria have given to tenants, in all but name, a charter not to pay rent.

The principle issue is that the moratoria make no distinction between those tenants who are capable of paying rent and those whose businesses have been so ravaged by the rapid decline in footfall caused by the lockdown and simply cannot pay their rent.

The economic reality being that the former class of tenants have been able to re-open to a degree and operate, if not at a profit, in an economically viable fashion whereas the latter group are simply unable to operate at all.

In contrast the effect on landlord investors has been uniformly grim. This is illustrated by the recent publication by the Crown Estate, one of the UK’s biggest and most prestigious property investors, of its results for 2019-20 (only a small part of that period falling within the lockdown period). The Crown reported:

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