How to survive landlord insolvency
Although the 2020 government-imposed lockdowns caused widespread shock to begin with, attention has now shifted to the support offered to help protect the UK economy during these challenging times. Learn more about how to survive landlord insolvency.
For landlords and their tenants, the most high-profile measure introduced by the government was contained in the Coronavirus Act 2020, which came into force on 26 March 2020.
The problem with the Coronavirus Act 2020
To deal with the issue of commercial rent arrears, the Coronavirus Act 2020 introduced a moratorium on forfeiture of commercial leases due to non-payment of rent until 30 June 2020. This was later extended to the end of 2020, along with an extension on the restriction on landlords using Commercial Rents Arrears Recovery to enforce unpaid rent on commercial leases.
Despite a code Code of Practice being published to support these discussions, there are still some concerns that the measures don’t offer enough protection to tenants impacted by the crisis, as rent is still payable and landlords are entitled to use other enforcement measures to recover payments.
But…in the rush to protect tenants, landlords have been placed in an equally difficult position. For many, a large part of their rental income vanished in the space of a month, and measures like the Coronavirus Act 2020 have limited their ability to reclaim it.
Commercial landlords, at time of writing in November 2020, have not been granted the kind of loan repayment holiday offered to other sectors of the business world. There is a significant chance that large numbers of landlords could face insolvency in the next few months and beyond.
With this in mind, the questions to consider are what insolvency means for you as a commercial landlord – and what it means for your tenants who have managed to keep their businesses operating.
For advice and help with your challenges as a commercial landlord, call us on 0800 054 6590 to speak to one of our licensed insolvency practitioners, email us at [email protected] or request a call back
How we can help you survive facing landlord insolvency
There are ways to protect your business and survive the impact of the coronavirus crisis. Although the solution will depend on your situation, if you’re insolvent a Creditors‘ Voluntary Arrangement (CVA) or pre-pack administration are two options that might be available to you as an alternative to liquidation.
Creditors’ Voluntary Arrangement (CVA)
In some cases, a Company Voluntary Arrangement (CVA) is a viable alternative to a full scale liquidation.
This will take the form of an agreement between you and your creditors and can be entered into as long as 75% of those creditors agree. Your tenants won’t be involved in the process itself and will only discover it has happened after the event.
You can find out more about the process here.
The impact a landlord CVA might have on a tenant is difficult to predict. But under the supervision of an Insolvency Practitioner, it’s likely that you’ll have to harden your view when it comes to lease obligations being met in full and on time.
As such, the kind of flexibility needed for the negotiations between you and any tenants in the current climate are likely to be absent once a CVA is in place.
If you go down the route of administration, the impact on you and your tenants is likely to be reduced. As the administration will be attempting to rescue your company, the administrator will work closely with existing management, which should ensure that existing lines of communication continue to operate as before.
Administration will usually cover the whole of your business and all the properties let. The situation gets more complex if you hold a mix of profitable and unprofitable properties. Loss-making properties risk pulling the otherwise profitable business into insolvency, a fact which is intensified in the current economic crisis.
The solution is often a pre-pack administration, which sees the profitable element of the business sold off to form a new company, while the loss-making aspects become part of a CVA.
A tenant of the profit-making element of your business will take the new company as their landlord, which will often involve working with the management and admin team of the original company.
You can read more about the pre-pack administration process here.
Why communication is key and could stop landlord insolvency
Regardless of how the current situation plays out, it’s in the interests of both you and your tenants to keep lines of communication open and take steps to reaching an outcome that is mutually beneficial. The landlord insolvency crisis you are currently face is challenging enough, so there’s nothing to be gained from making matters more difficult than they need to be.