Amongst the tragedy, the changes in how people live, the changes in social norms, the politics and the coverage of the COVID-19 pandemic, one thing is increasingly clear: as a global society we are highly interconnected, especially in financial terms.
Although a lot of the coverage of the Government’s response so far has been focussed on help for businesses, that is a small step away from covering all those who may suffer the knock on effects of the response to COVID-19. Landlords are a great example of this.
The shuttering of businesses, furloughing of staff and restrictions on movement have led to less money, less security, and less turnover – for everyone.
If Tenants Can’t Pay Rent
The biggest concern in all of this is what if your tenants can’t pay their rent. While the government has been proactive in providing support for most, this support is significantly delayed. And with the start of the month (April) upon us, rent is due.
And this is a very hard time for the tenants too. If they are being furloughed or will receive support as a self employed individual, these support measures will be delayed until later this month and June respectively – and significantly less than they usually live on month-to-month. They’re already feeling the squeeze and may not have enough in savings or credit to pay as usual.
The key is communication here, you should be speaking with your tenants, get a good idea of everyone’s personal situation up-front so you know what you’re dealing with. So call your tenants and check in on them at this time.
Some landlords have proactively started helping their tenants, or at least offering help. Some have pre-emptively instructed their letting agents to inform them that they are flexible in terms of payment at the moment. Others have offered rent breaks and are checking up on, and offering support to, elderly and vulnerable tenants.
One crucial thing that has been emphasised is that landlords must still fulfil their legal obligations to ensure that their properties meet the relevant standards, though non-essential repairs should be done on a risk-based approach. Social distancing counts for your relationship with your tenants too, so you should not enter the property for anything less than urgent repair work.
It is worth remembering why these measures are necessary: landlords owe their tenants and the wider society a duty of care to keep their tenants safe. If tenants feel at risk of losing their home they may do things that compromise their own health and, by extension, the health of others. Every infected person infects a further 2.5 people on average. Keeping people at home is our best weapon against COVID-19. There’s a heroism in helping others, whether you’re on the frontlines in the NHS, ensuring that the vulnerable are taken care of or doing something as seemingly unrelated as offering your tenants a rent break.
Mortgage Breaks / Holidays
Landlords can now access a 3 month mortgage holiday to help ease the strain if tenants have been affected by the COVID-19 crisis. This is a great option for any landlord whose tenants are struggling at this time.
“The Government is clear – no renter who has lost income due to coronavirus will be forced out of their home, nor will any landlord face unmanageable debts.
“These are extraordinary times and renters and landlords alike are of course worried about paying their rent and mortgage. Which is why we are urgently introducing emergency legislation to protect tenants in social and private accommodation from an eviction process being started.
“These changes will protect all renters and private landlords ensuring everyone gets the support they need at this very difficult time.” Robert Jenrick MP – housing secretary
At the time of writing most major lenders are offering this mortgage holiday to landlords:
The mortgage holiday gives you a three month period where payments do not have to be made if your tenants are affected by the pandemic – this will not affect your credit rating. However, after the three month period you will need to agree terms to increase your monthly payments to make up for the missed months and any interest applicable.
You may only need a short holiday, of a month or so, in which time the support from the government will be paid to your tenants and you can all get back on track.
Repossession Is On-Hold
The Government are mandating a 3-month notice period in the event that landlords wish to seek possession of the property, regardless of circumstance. In addition, current and upcoming housing possession action has been suspended for an initial 90-day period. This means that court proceedings cannot even begin until that 3-month period has elapsed should you wish to evict tenants, for example. Both of these changes can be further extended should the Government see fit to do so.
Of course, this doesn’t mean that renters should just stop paying rent, it merely delays eviction in the short term. The effects of eviction will still apply to the renters in future.
The Government are recommending that renters who are suffering from financial hardship and struggling to make their rent payments should work with you, the landlords, to try and resolve the situation, for example by putting in place a rental payment plan.
What About Commercial Landlords?
In the commercial rental sector, landlords now face the unenviable position of insisting upon rental payments, deferring rental payments until a later date or engaging in a dispute with their tenants. Some large businesses, such as Burger King and Primark, are refusing to pay their rent while they are forcibly closed, while others are claiming that rent deferrals could still bankrupt their companies. After all, a deferral means that the renter is still liable for the rent, just at a later date. As commercial renters are losing income while they are shuttered, many may not have the means to meet these obligations. SMEs are particularly affected, as they generally have proportionally higher overheads, fewer assets, less savings and are less attractive to lenders.
Some landlords, such as TFL, have written off the rent due in their properties for three months to help these businesses. But not all landlords have the capacity or capability to do so. Landlords still need to meet their financial obligations, and their calculations when acquiring properties is obviously based on an assumption of income being generated. Take this income away and many are just as vulnerable as their clients.
In a way, the effects of the virus on the economy may not be dissimilar to the effects on humans: the initial symptoms may be mild, but as the symptoms start to domino and cascade, the effects become increasingly severe and the prognosis less encouraging. The economy is a system, just as the human body is, which is why we need the Government to step in and treat these symptoms and causes. They’ve made a start, but it’s not going to be enough, and if they leave it too late then many may suffer avoidable economic consequences.
Do You Need Help?
Contact your accountant at Warr & Co if you’re a landlord who thinks they may be negatively effected by the effects of this current crisis. We’re here to talk you through any specific options which may be open to you, we are keeping a close eye on the advice from the government and we may be able to help you navigate during this difficult time.
If you’re not yet a client but would like our help, please feel free to book a free consultation to speak to one of our landlord accountants.
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