MEMBER NEWS: COVID-19, cashflow and rent payments: the latest for commercial landlords and tenants

November 19, 2020
MEMBER NEWS: COVID-19, cashflow and rent payments: the latest for commercial landlords and tenants

Article prepared by Alasdair MacLure, partner, Ledingham Chalmers.

If you own a business operating out of premises, or you’re a commercial landlord, the COVID-19 pandemic means you’ll understandably be concerned about cashflow and costs, as well as the rights and obligations contained in your lease.

Either way, it pays to know the latest when it comes to legislation and guidance.

Anti-eviction measures for non-payment of rent

Following the latest government review, the anti-eviction measures in the Coronavirus (Scotland) Act 2020 have been extended for six months to 31 March 2021, although this new date could change.

This means a landlord may only terminate a lease after it has given the tenant a warning notice period of 14 weeks (extended from the previous minimum notice of 14 days) to pay outstanding rent.

Remember too that other landlord remedies for non-payment of rent in Scotland remain available: for example, penalty interest, court action or summary diligence.

Landlords will tend to use the eviction option as a last resort only. A property that’s vacant because a lease has been terminated is not an attractive prospect, particularly in the current climate and not least, here in Aberdeen, because of business rates considerations.

When a lease is terminated, the landlord becomes liable for the business rates on an empty property.

And, of course, in the north east, the business rate revaluation postponement until April 2023 means businesses (including landlords of vacant premises) will continue to pay rates based on the historically high 2015 rental values.

Statutory demands and winding-up petitions

The Corporate Governance and Insolvency Act 2020 came into force on 26 June 2020. This introduced temporary measures to help businesses carry on operating through the pandemic.

From the point of view of a tenant who has struggled to meet rent payments, the act puts in place protective measures, restricting landlords’ ability to use statutory demands or winding-up petitions as an enforcement remedy where the financial effect of COVID-19 on a business means the tenant has not paid.

This temporary restriction has been extended until 31 December 2020.

Code of practice for commercial landlords and tenants

Many landlords have been faced with tenant requests for “rent holidays” or other concessions. And, of course, some will have been more sympathetic than others.

The Scottish and UK governments have encouraged both parties to take a co-operative approach and have published a voluntary code of practice.

This is designed to promote collaboration and help landlords and tenants find a mutually acceptable approach to survive COVID-19 disruption and maintain good relations.

The code does not change the legal relationship or lease contract already in place between landlord and tenant, and any guarantor.

For example, the document suggests commercial tenants seeking rent concessions should be transparent and share appropriate financial information. This is so the landlord can better understand what concessions will work to make sure the tenants can stay in the premises, generate cashflow and ultimately satisfy their obligations to pay rent under the lease agreement.

In essence, this ought to prove useful when it comes to determining if a tenant can’t pay, or simply won’t.

On the other hand, the code suggests that landlords should be willing to provide concessions where they reasonably can (taking in to account their own circumstances) and being prepared to be open about any decision to refuse a concession.

Our perspective

While the risk is that concessions may not be enough to save a struggling business, it’s been our experience that landlords have been willing, so far, to support tenants with options like rent holidays, which could mean a reduction in the amount paid, or simply postponing when payments have to be made.

Some landlords may want something in return for a rent concession, such as the removal of a break option. This is where, generally, the tenant can terminate the lease before its term expires.

In any event, it’s important any concession is properly documented.

Looking ahead, as businesses continue to face cashflow pressures, particularly in the hospitality sector, it remains to be seen if landlords will continue to support further concessions, as this approach becomes harder for them to sustain.

Fundamentally while commercial landlords have a few options at their disposal to deal with arrears, it seems co-operation between landlords and tenants makes the most commercial sense as the pandemic rages on.

 

Get in touch

The team at AREG is committed to ensuring that businesses in Aberdeen City and Shire capitalise on opportunities in renewable energy and that our members achieve success in this rapidly growing market. Please contact us with your news, views, concerns and successes so that we are well placed to deliver on your behalf.

AREG has played an important role in the growth of Scotland’s renewable energy sector, engaging the supply chain and developing the European Offshore Wind Deployment Centre. However, we are only at the very beginning of the transition that AREG was established to both lead and support so there are still opportunities for companies to get into the constantly evolving renewables supply chain. We look forward to continuing our work together as renewables builds on its place as Scotland’s main source of power, and as we seek to deliver real change in the crucial areas of heat and transport.

Scottish Renewables

Aberdeen & Grampian Chamber of Commerce has worked closely with AREG since its formation. The recent progress in the developments of offshore wind projects by Equinor and Vattenfall are as a result of the work of the group over many years. The north-east is known as the oil and gas capital of Europe. At the Chamber, we believe the region must evolve its position to being recognised as the energy capital. Whilst hydrocarbons will continue to be essential in driving our economy for years to come, the generation of renewable resources will play an increasingly important role in providing cost-effective power, innovative development and economic growth.

Aberdeen & Grampian Chamber of Commerce

The enthusiasm and dedication of the early group that would become AREG was fundamental in us choosing to launch All-Energy in Aberdeen. The first tiny show was held in 2001, and AREG’s Chairman at the time, Jeremy Cresswell, played such an active role that I often describe him in terms such as All-Energy’s ‘midwife’. All-Energy is now the UK’s largest renewable and low carbon energy exhibition and conference in terms of number of attendees, space booked, and number of exhibiting companies. As AREG became firmly established, their presence and support for the event grew spectacularly over the years. We thank them most sincerely for their invaluable input.

All-Energy

Vattenfall has forged a strong working relationship with AREG through the development of the European Offshore Wind Deployment Centre. AREG has worked tirelessly on behalf of the North East and it can take enormous credit for the growth of sustainable energy in the region and the path it has cleared for the region to capture further investment.

Vattenfall

Aberdeen City and Shire is emerging as a key location for renewables by successfully transferring its world-class oil and gas expertise into the sector and AREG has done much to advance this through a broad range of initiatives. It has acted as a catalyst in driving further investment in the local economy by engaging with companies, Government, public bodies and existing projects and we have been pleased to support their efforts. Scottish Enterprise will continue to engage with AREG as we increase Scotland’s use of renewable energy.

Scottish Enterprise