Jun

Concern grows among landlords and legal experts over proposed Coronavirus insolvency legislation

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Draconian new insolvency laws are set to
cause commercial landlords big problems.

The second reading of the Corporate Insolvency and Governance Bill – being debated in the House of Lords today – aims to help tenants stave off insolvency during the crisis but has big implications for landlords.

While the Government wants
to safeguard tenants, particularly those on the high street, against aggressive
debt recovery actions during the lockdown, there are fears the result will be landlords
with reduced negotiating power and less incentive for corporate tenants to pay rent.

The Bill effectively removes the insolvency
process from the landlord’s armoury in rent recovery as they’ll be blocked
from chasing rent payments for at least 90 days.

It includes a temporary ban on landlords using
winding up petitions between 27^th April to 30^th June,
where a tenant can’t pay its rent bills due to coronavirus.

Landlords also won’t be allowed to start recovering rents
unless they’re owed at least 90 days of unpaid rent, while the previous minimum
was seven days.

Accountancy group Moore claims the legislation weakens property investors’ negotiating power.

Tip too far

Director Chris Tate says: “The
scales now threaten to tip too far in favour of big multinational corporate
tenants against landlords who might be small private investors or pension
funds.

“For some smaller landlords the
suspension of rent payments could put them under acute financial pressure.”

He adds: “This latest bill will further
incentivise corporate tenants to not pay rent even if they can afford to. The
legislation should at least allow landlords to charge a sensible level of
interest for the late payment of rents over the last few months, if this is not
stipulated in the lease.”

Moore suggests the Government should consider asking businesses that have reported a turnover of £45m or more last year and forecasted free cash-flow for the next quarter of 5% of sales to pay the rent due or a proportion of it.

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