As the world as we know it moves into unknown territory we provide some practical guidance for investors and landlords to deal with the fallout from the pandemic.
As a purchaser investor, it may be worth seeing if a commercial deal can be struck with the funder in terms of repayment options to enable the acquisition to go ahead.
It is important to take into account the wider landlord and tenant relationship. As we have seen with the recession and Brexit, businesses will bounce back. It is unattractive to have vacant units and so to ease the pressure on tenants but to maintain cash flow it is essential that compromises are made to allow tenants to continue to provide an income stream.
Whether or not an arrangement is agreed with landlords, landlords and tenants will need to give due consideration to safeguarding measures in buildings against COVID-19 and recouping the costs as part of the service charge (which landlords would usually be entitled to do) – again, the parties may be able to come to an arrangement so that cost is apportioned fairly and over a period of time.
Medium term and long-term considerations
Terminating a property sale and purchase contract
Investors, sellers or buyers may wonder if they can exit a property sale and purchase contract (based on the standard property conditions). Buyers may argue that the contract has been "frustrated" and seek to rescind the contract and get their deposit paid back. Courts take a very restrictive approach and so this argument is unlikely to succeed. When the common law doctrine of frustration applies, it automatically determines the contract concerned and discharges the parties from future liability. The limited scope of frustration and the high bar that must be met means that it is generally difficult to assert.
Buyers may then attempt to argue "force majeure" but again it is very unusual to have such a clause in a straight property contract (i.e. one which does not contain development obligations).
Terminating leases or notices that can be served on the tenant
Forfeiture: Whilst the idea of forfeiture is one which may have previously prompted payment of arrears many tenants are desperate to leave their premises and avoid any liability going forwards. Therefore, this is not a particularly attractive option to landlords who will then assume liability for the premises without any rental income.
Statutory demand: The service of a statutory demand may seem attractive and apply pressure to get the rent paid. However, it is questionable whether landlords will wish to incur the cost of pursing companies who may not have any assets following a winding up order being made.
CRAR: Whilst CRAR (a process which allows landlords of commercial premises to recover rent arrears by taking control of a tenant's goods and selling them) is a quick solution it is not without obstacles and the landlord would have to go down the route of selling the tenants goods at auction. In a tough climate it is unlikely that there will be much demand for such goods.
The key is to fully understand your legal rights and obligations to determine whether or not you will be fully exonerated from your liabilities given the crisis and if not, how you can mitigate the ramifications by coming to a commercial arrangement with the other parties to the agreements.
At Howard Kennedy we are able to assist you in all Real Estate matters. We are more than willing to discuss your options with you to enable you to protect your business needs in these testing and uncertain times.