While the global Coronavirus pandemic will be felt across all industries, the impact will vary. However, with building sites coming under pressure to close, rents not being paid, liquidity reduced and property values indeterminable, the property sector faces particularly uncertain times. With the acceleration of flexible working patterns and consumer spending, a long-term change is also inevitable.
In this article we highlight a number of immediate areas to consider for individuals and businesses working in property.
Landlords and tenants
Early communication between landlords and tenants is to be encouraged to ensure that both parties can forecast how the pandemic will affect their income and expenses.
The emergency Coronavirus Bill includes provisions to remove the risk of forfeiture for non-payment of rent by business tenants for the “relevant period” (currently up to 30 June 2020). This means that many tenants failed to pay rent due on the March quarter day of 25 March without risk of forfeiture. Note, however, that the new rules do not reduce or defer the rents due and therefore interest will continue to accrue on rent arrears.
Also, the Bill only offers protection against forfeiture for non-payment of rent (defined as any sum a tenant is liable to pay under business tenancy and therefore ‘rent’ may also include service charges and insurance rent) but does not apply to other breaches. Therefore, it remains open to a landlord to serve notice for a breach other than non-payment of rent in the period to 30 June 2020.
Both landlords and tenants should check their lease terms carefully as a priority and get in touch with each other where there are any concerns over the terms of the lease. For example, there may be ‘keep open’ covenants requiring commercial buildings to stay open for as long as agreed in the lease.
Where tenants are able to agree rent holidays with landlords this may be considered a variation to the lease which could require agreement from the landlord’s bank due to loan covenants in place. So before agreeing to any changes, be sure to run these past your finance providers first.
In order to protect tenants, residential landlords are not able to start proceedings to evict tenants in private or social accommodation for a three-month period.
Cash-flow considerations
- Where buildings are empty, or construction projects suspended, look at your cash-flow carefully to identify areas where you may be able to negotiate savings.
- If you are likely to struggle to make repayments on loans, then always approach lenders in advance of any due-dates to discuss whether any alternative arrangements can be made.
- Consider if you are eligible for one of the new financing schemes launched this month; the Coronavirus Business Interruption Loan Scheme or Covid-19 Corporate Financing Facility. Please note, it may be easier to approach banks for conventional lending if there are assets available for security.
- Are you eligible for the Coronavirus Job Retention Scheme which will subsidise the wages of those members of staff that would otherwise have to be ‘laid off’ as a result of the Government measures imposed due to the Coronavirus impact? If so, then HMRC will reimburse 80% of furloughed workers wage costs, up to £2,500 per month. This may be relevant to employers of reception staff or property maintenance workers who find themselves without work to do for several months.
- For those landlords that don’t already operate applications for payment, they should be considering this arrangement instead of issuing VAT invoices for rent in advance of payment to improve their cash-flow.
- VAT deferral will automatically apply to all VAT payments due between 20 March and 30 June, with an option to defer payments up until 31 March 2021. Where a landlord can take advantage of the Government’s VAT deferral arrangements (see further below), it may be beneficial to continue with, or consider switching to, the normal VAT invoicing arrangement during the period covered by the deferral.
- HMRC may be able to agree Time to Pay arrangements for other tax liabilities including PAYE and corporation tax.
Emergency maintenance works are still allowed to take place but consider who will be monitoring the property and identifying any issues.
Other practical considerations
- Where properties are partly or totally empty, consider whether there are any savings to be made.
- Where construction projects are paused, are you able to save costs relating to any hired plant you may have at the site which you might be able to return until construction recommences? Equally, you may need to look ahead to ensure that any hire agreements can be extended to ensure that all required equipment will still be available when the project eventually recommences as there may be a sudden surge in demand.
- If your building is empty do you need to notify your insurers and take steps to secure the property? Consider who is responsible for any ongoing security / monitoring costs.
- Where properties are empty, who is responsible for their maintenance? Emergency maintenance works are still allowed to take place but consider who will be monitoring the property and identifying any issues. Both landlord and tenant should check the terms of leases carefully to ensure that the responsibilities with respect to the condition of the property itself, which continue in the event of the property being vacated, are identified.
Purchase contracts
Where contracts have already been exchanged you are legally required to complete. However, where contracts have not yet been exchanged, now is the time to consider whether the transaction can be delayed or if it should still go ahead as planned at all.
Factors to consider include:
- Should the contract be amended to include additional clauses to protect the buyer in case they are unable to complete? For example, it may be possible to include a clause stating that if one of the parties in the deal is forced to self-isolate, all parties will agree to extend the completion of the deal.
- If the current restrictions are likely to make completion tricky for logistical reasons, consider exchanging on more flexible or completion conditions or even with an open-ended completion date.
Self-employed contractors
The UK Government has already announced that self-employed individuals will be given access to a new equivalent of statutory sick-pay where Coronavirus has meant you are prevented from working and delayed the next round of self-assessment payments. These were originally scheduled for 31 July 2020, until January 2021.
A further round of assistance packages for the self-employed was announced on Thursday 26 March. Subject to qualifying criteria, self-employed people will be able to apply for a grant worth 80% of their average monthly profits over the last three-years, up to £2,500 a month.
VAT deferrals
In order to boost business cash-flow, HMRC will automatically be deferring business payments for VAT for the period from 20 March 2020 until 30 June 2020. All UK businesses are eligible for the deferral and this will apply automatically with no applications required, but VAT direct debits should be cancelled. Businesses will not need to make a VAT payment during this period. Instead taxpayers will have until the end of the tax year to pay any liabilities that have accumulated during the deferral period.
VAT refunds and reclaims will be paid by the Government as normal.
Consideration should be given as to when taxable commercial property transactions should be completed. Where substantial sums of VAT are payable on a transaction, timing of the tax points will be vital for improving cash flow for both suppliers and purchasers of taxable property. You can find out more in our guidance here.
Stamp Duty Land Tax on aborted deals
If Stamp Duty Land Tax (SDLT) has been paid before completion of a land transaction, and the agreement is not completed because, for example, it is frustrated or terminated by agreement, then the tax shall be repaid by HMRC on application (amendment of the SDLT return).
HMRC have resisted such applications where the termination arises more than one year after the tax point (usually the act of taking possession), but a recent appeal brought by us on behalf of a client found that the length of delay is irrelevant.
Would you like to know more?
If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest insights and sign up here to receive important Practical Guidance updates delivered directly to your inbox.