Article written and provided by Sophie Kingwell- Meader, Account Executive at Estate Insurance Group, for Beacon Gainer, private wealth advisory services group.
On the 23rd of March, the UK government announced an official, nationwide lockdown in response to the ongoing COVID-19 pandemic, escalating the early March recommendations of social distancing and only engaging in essential travel. This lockdown has caused unprecedented disruption in the day to day of the country, across all sectors and parts of the economy but most notably retail and service-based businesses that rely on in-person customer interaction. The forced business closures of 23rd March have impacted not only the business owners themselves but the Property Owners, Investors and Property Managers that are involved in the holding, financing and running of residential and commercial property assets.
The 15th June, 3 months into the UK lockdown, marked the partial easing for non-essential retail. Additionally, last week the Prime Minister announced that, as of Saturday 4th July, social venues and many service-based businesses will open to the public for the first time since the end of March. This opening of UK businesses and step towards resumed normality once again affects the ongoing impact and responsibilities that COVID-19 has had and continues to present to those within the Property sector. To help navigate the changes in anticipation of the 4th July, we have summarized three major changes and key areas of discussion to address with tenants and involved parties.
Rent Arrears and Restrictions
The UK government has announced that restrictions on landlords for forfeiting on commercial leases or using the commercial rent arrears process will be extended until the end of September under the Coronavirus Act 2020. It is key to note that this Act does not offer a forfeiture of rent entirely for tenants – in the majority of leases, rent obligation is only suspended or adjusted when there has been damage or destruction to premises. Instead, tenants are encouraged to pay rent wherever possible by mutual agreement of the landlord.
Although businesses’ turnover will have been impacted where premises have had forced closures, now that commerce can resume under government guidelines, discussions with tenants about rent deferrals or reductions should be revisited. Any agreement by landlord and tenant should be fully documented and review provisions included in the event of secondary full or local lockdowns as has recently been announced in Leicester.
Landlords, Freeholders, and Commercial Property Owners are usually responsible for the insurance of the property in which they have an insurable interest. These policies are rated and underwritten on the basis of the property’s occupancy and usually contain a standard 30-day occupancy clause. If a property remains vacant for a period longer than this, the policyholder is required to inform their insurers and cover is restricted. At the beginning of lockdown, as many premises were forced to close, many insurers extended their unoccupancy period to 90 days before notification is needed and cover restricted accordingly. On the flip side, now that businesses are opening and tenants are occupying commercial buildings again, Property Owners should be aware of their policy requirements. Policyholders should ensure their insurers or brokers are informed of the occupancy of their buildings so that they, and their assets, can remain adequately protected during the lockdown easing.
Provision of Services
Force majeure clauses, which could allow a landlord to suspend their requirement to provide tenant services, are uncommon. Before tenants return to commercial premises, landlords should review their leases for the provision of services that they are obliged to provide to the occupants and ensure there is a mutual understanding of each party’s responsibilities. For example, where a landlord has control of premises, they are contractually required to reasonably ensure the health and safety of those working in the building. Given the current COVID-19 situation, this requirement can be extended to ensuring deep cleaning as part of a wider provision of services