In the current climate it will come as no great surprise, that a growing number of residential tenants have been approaching their landlord requesting a reduction in rent or for a rent payment holiday. Most have either been furloughed by their employers and are receiving less income, have lost their jobs completely or have been unable to work.
We have received numerous queries from landlord clients asking what they should be doing in these circumstances. Most of these landlords are greatly sympathetic but equally concerned that in agreeing any change in the manner in which rent is paid, they are fully protecting themselves and their interests.
Rent holiday v rent reduction
Perhaps the first point to consider is what your tenant is actually requesting.
A rent reduction means you are agreeing to collect less rent for a certain period of time. You agree that this rent will never be payable by the tenant, regardless of how long they remain in the property after the current lockdown is lifted or eased.
By contrast, a rent holiday, means that for a certain period of time, you agree to accept a lower amount of rent, and the shortfall remains payable at some point in the future. Usually the landlord also agrees not to charge interest on the deferred payment. This could be addressed by stating after a certain period of time lapses, the rent after this period will be higher than that stated in the tenancy agreement until such time as the shortfall is repaid. If the tenant fails to pay this increased rent, then they are in breach of the terms of their tenancy agreement in the usual manner.
Practical and commercial considerations
When considering whether a rent reduction or holiday is the correct option, a landlord may want to explore the tenant’s actual circumstances as these will vary per tenant.
If the tenant worked in the hospitality industry for example and has lost their job completely, it may well be some time until they are able to source another similar role given the restrictions on movement and restaurants not being permitted to be open. If you are agreeing a rent holiday, are you actually likely to be reimbursed when this period lapses.
Has the tenant always settled their rent promptly in the past or has there been a history of arrears? This may well give an indication as to whether a landlord may encounter issues further down the line in collecting any rent owing.
Do you as a landlord have a mortgage? If you accept a smaller rent from the tenant, can you still pay your mortgage? Have you approached your lender for a mortgage repayment holiday and considered what this may mean for you in terms of future repayments? Under your mortgage terms do you need your lenders consent to accept a below market level rent – even for a short period of time?
What if I say no?
You are of course free to refuse any request for a change in how your rent is paid. It may be you have good reason to feel your tenant does actually have sufficient resources to pay their rent.
If you do decline this request, and your tenant falls into arrears of rent, then it is worth considering your current options in this respect, as these will have altered given changes to legislation put in place since this lockdown commenced.
The statutory measures protecting tenants under an Assured Shorthold Tenancy (AST) from forfeiture have been extended. The notice period a landlord must give to the tenant to terminate an AST on grounds of rent arrears has been extended from 2 to 3 months. These new rules currently apply until 30 September 2020 but this could be extended.
These measures do not apply to common law tenancies, which would for example be the situation where the tenant of residential premises is a company and not an individual or where the rent exceeds £100,000 per annum. In such a case the landlord can still forfeit the tenancy as permitted under the terms of the agreement.
Once the notice period expires, a landlord can still issue possession proceedings, however, all possession claims or proceedings to enforce a possession order have been stayed, in other words put on hold, until 25 June 2020. So a landlord who had served notice prior to the emergency legislation, or a landlord of a common law tenant, would still be caught by this.
Recovering the arrears
The recent legislation does not prevent landlords from pursuing other claims, such as a debt claim for the non-payment of rent. This sort of action does however take time, even more so at the moment when a lot courts are either closed or operating with minimal staff, so be prepared for a long process.
Serving a statutory demand on the tenant can also often be an effective recourse. If the tenant does not pay the debt within 21 days bankruptcy proceedings can be issued against them. This route is still currently available to landlords but this door could soon shut. The Government has announced further measures to ban the use of statutory demands and while it appears that the aim is to protect commercial tenants the details are still vague and so could also apply to individual tenants.
In addition to the above restriction on the remedies that are available to landlords, there is also the physical hurdle of finding a new tenant in this climate. A lot of estate agencies are closed currently and no viewings are taking place. And so, it may well be preferable to be receiving a reduced rent rather than having a property sitting vacant, or in the case of a rent holiday, the guarantee of rent at a certain point in the future.
Documenting any change in rent
What remains really important is to ensure that any change in the manner in which rent is collected is clearly documented. In an ideal world, you would have this drawn up as a side letter or addendum to the tenancy agreement and signed by both parties. However we are mindful that parties perhaps do not have access to printers, scanners, etc., to be able to do so.
We see no reason why any agreed amendment to rental arrangements could not be documented over email exchange. However, it should be unequivocally clear what terms are being agreed, so that a tenant cannot subsequently suggest they were not aware that any rent was repayable or that they thought they did not have to pay any rent. Precise dates and rental amounts should be clearly set out in any such exchange of emails.
Peace of mind
If you are a landlord in a similar situation and would like some advice on how best to look after your interest and those of your tenants, then please do get in touch and we would be delighted to talk you through your options.