Commercial landlords are “left in the lurch” as more business tenants go bust

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The worst fears of a commercial landlord are realised when the flow on quarterly or monthly rent payments starts to dry up! Read on to find out what to do if you’re faced with this.

According to the latest available Office of National Statistics (ONS) figures, the number of company insolvencies in England and Wales reached a 13-year high in the first half of this year and there’s been no sign of the trend abating since.

Total company insolvencies (5,629) in England and Wales in the second quarter of 2022 reached their highest quarterly level since Quarter 3 2009, driven by companies going in to voluntary liquidation.

Covid support gone

Government support during Covid meant that insolvencies had decreased in 2020, when average quarterly insolvencies in the early part of 2020 were slightly down on the 2015 to 2019 average, but in August 2022 more than 10 per cent of UK businesses reported a moderate-to-severe risk of insolvency.

Most reported energy prices as their main concern. Soaring energy costs and materials prices, consumers tightening their belts and lost orders are leading on a slippery slope into a recession, forcing a record number of firms out of business.

Construction, manufacturing, accommodation and food services, wholesale and retail trade industries together accounted for over half the total business insolvencies in the first half of 2022, and the rate that companies are going bust is nearly 50 per cent higher than the average over the four years before the pandemic.

Small firms with less than 50 staff are the most likely to face insolvency according to the ONS, with a moderate-to-severe risk of insolvency in that sector. A weakening economic outlook and the prospect of increasing energy costs as government support is lifted going into 2023 is weighing on companies’ futures.

Most of the businesses in the above sectors were heavily affected during the pandemic. A combination of cash flow issues, the removal of government Covid support, plus the surge in energy prices following the Ukraine war, have accelerated falling business confidence.

With more hardship in the pipeline as consumers tighten their belts, there’s likely to be something of a cliff edge following the Christmas spending spree, as economic experts predict it is likely to get worse before it gets better.

What can landlords do when faced with tenants going bust?

Usually the first sign of trouble is missed rent payments, tenants asking for more time to pay, the bank rejecting cheques or cancelling standing order payments.

In these situations tenants are usually inventive in the excuses they come up with but landlords need to be on their guard and need to get to the bottom of what’s happening quickly.

Being aware of the importance of monitoring rent payments means that you can at an early stage try to develop a communications channel with your tenant to establish the true position.

Whilst doing this, a visit to the premises should give you the opportunity to observe what’s happening: is there to usual level of activity in the firm?, whether that’s reduced footfall in a retail business or piling up inventory and finished goods in a manufacturing business, when orders are being cancelled or delayed, the signs will be there if you’re observant.

Other obvious signs to look out for are those shouting out to you, about stock clearances, massive reductions and perhaps even closing down sales, all literally giveaway signs that trouble is looming. If this is unusual activity for the business concerned then the signs are definitely on the wall and in a hostile economic environment like this its important that you quickly get to the bottom of what’s happening with your tenant.

Search the bankruptcy and insolvency register

Don’t panic

It’s important not to panic and make matters worse. Threats will only close the communication channel between you and your tenant so you should approach the issue in a spirit of support, cooperation and professionalism.

If your tenant is open and honest about its situation then perhaps there’s something you can work out together. Losing a tenant can often mean a long void period where the landlord becomes liable for payments, plus you have the cost and expense of marketing the property and signing up a new lease.

Vacant commercial premises costs can be considerable, turning an income producing asset into a liability. After 3 months vacant (unless a listed building or a low rateable value) the landlord becomes liable for the full cost of business rates, insurance at vacancy rates (often double the rate when occupied), repairs costs fall back on the landlord (if this was a full insuring and repairing lease), there’s likely to be a cost for increasing security and utilities standing charges will by payable.

Even if rent payments are considerably reduced or fail altogether it is often better to sit tight and let the tenant take the responsibility for all these costs, as long as they are on a lease commitment. It may be that the business can survive on that basis and normal serve can resume eventually.

When all else fails

If the tenant does go bust you need to quickly establish what kind of insolvency process the tenant is going down: voluntary liquidation, administration, compulsory liquidation, receivership or a voluntary arrangement.

This is likely to be a very difficult time for your tenants as well as yourself, so try to approach the issue with professionalism and sensitivity. You are likely to be the one in the better financial position after all, so you can afford to be sympathetic, but you still need to protect your own interests.

Try to find out quickly who is dealing with the matter; is it an administrator, a liquidator, a receiver, or is it your tenants themselves who are making arrangements? Making contact is important with whoever it is is important and cooperation on both sides can only help.

You rent payments

In the case of administration you need to speak with the administrators as soon as possible as you may be asked to cancel the rent payments altogether or reduce them in an attempt to allow the business can continue trading, or facilitate a sale as a going concern, or a winding up.

But in all the other circumstances, you are still in your rights to demand rent to be paid as long as the lease remains current and the business is still using your premises. That doesn’t mean you will get paid if the tenant is already in arrears – very likely.

Unfortunately, if the company is already in receivership, any secured creditors such as banks and finance companies will take priority with payouts from remaining assets. Landlords are unsecured creditors so you will join the pool of all the other creditors such as supplies to to what’s left, if anything.

The administrator’s or liquidator’s fees come second in line for payouts, including their expenses the the preferred creditors will come next including employees of the company, and since 1st December 2020, HMRC is also ranked as secondary preferential creditors.

Regaining possession

In view of what’s been said above, and unless you have another tenant lined up, or you know the property will re-let easily, you should be in no rush to retake possession. When you do you take on the responsibility of all the vacant costs.

You know, or you should do by now, that you will eventually regain possession without further action on your part, so going down the road of forfeiture proceedings will be unlikely to be necessary. There may be a chance the administrator can sell the business as a going concern, in which case a new tenant will take over the existing lease.

In the absence of this happy scenario, you can look to start marketing the premises at the earliest opportunity to try to minimise your losses.

View Full Article: Commercial landlords are “left in the lurch” as more business tenants go bust

Record year for landlord and agent fines

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Rogue landlords and letting agents have been hit with fines that averaged £90,000 per month in 2022 in a sign that council enforcement is on the rise.

The findings from tech firm Kamma reveal that more than 12% of all fines in Greater London were handed out in the last 12 months –

View Full Article: Record year for landlord and agent fines

Artificial Intelligence for Christmas

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We asked the Artificial Intelligence program we are using to write a Christmas poem. The brief we provided was as follows: –

“Create a Christmas poem from Mark Alexander, Neil Patterson, and our Team of Tax Planning Consultants and Barristers

View Full Article: Artificial Intelligence for Christmas

UK’s first citywide selective scheme launch ‘a success’ claims council

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Oxford City Council is hailing its UK-first whole-city selective licensing scheme a likely success after it received more than 10,000 early applications – thousands more than expected.

The only scheme in the UK covering all privately rented homes launched on 1st September, offering an early bird discounted rate of £400 until 30^th November for a five-year licence.

Landlords and agents made 5,893 applications during the first three months while the city’s largest letting agents also submitted details of a further 4,200 homes. This added up to far more than the 7,500 applications the council had hoped for.

£1,100 fee

A standard fee of £480 has now kicked in and a higher rate fee of £1,100 will apply from 1st September unless a home is newly rented within 12 weeks of the date of application. The council will begin looking for unlicensed homes from 1st January.

Oxford was the first council in England to introduce a citywide scheme that required every HMO to be licensed back in 2011.

In April it received Secretary of State approval for its controversial new scheme which covers half (49.3%) of all Oxford’s homes.

The NRLA voiced its opposition during the authority’s consultation, arguing that HMO licensing had led to rents increasing, and to those on lower incomes in the city being driven out of it, as the council seeks to rehouse people in Birmingham and elsewhere.

Councillor Linda Smith, (pictured) cabinet member for housing, says: “We’re dealing with more than 10,000 licence applications and that’s great news for tenants and the majority of responsible landlords and agents.

“If you’re a landlord or agent who hasn’t applied yet you’ve missed the early bird but don’t miss the boat. Everyone should have a decent home and your tenants deserve the confidence of knowing that theirs is safe, in good condition and well managed.”

Apply for a licence.

View Full Article: UK’s first citywide selective scheme launch ‘a success’ claims council

Tenants left with electric meter broken?

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I had tenants move out with no notice, and no keys returned.  Eventually, I decided they were not coming back as they cancelled the Council Tax and I was told they had been given a council property.

The gas and electric meter are key top-up payment types and the gas is a top-up card.

View Full Article: Tenants left with electric meter broken?

Regularisation certificate for a dormer window?

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Hello, I have a regularisation certificate for a dormer window extension to an existing loft. I first applied for planning permission and got it under permittable development.

The building regs surveyor for the council came on a number of occasions to inspect and made me take up a section of flooring to inspect and was happy with the joists.

View Full Article: Regularisation certificate for a dormer window?

Most student landlords are ‘concerned’ over reforms

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Government plans to reform the student rental market will lead to chaos and confusion because students won’t know if there will be any housing available for them.

The warning comes from the National Residential Landlords Association (NRLA) which says that widespread uncertainty will occur at the start of each academic year.

View Full Article: Most student landlords are ‘concerned’ over reforms

RISING panic reported among student landlords over plans for open-ended tenancies

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The NRLA has backed the growing number of student landlords ‘panicked’ by the Government’s plans to bring in periodic or ‘open ended’ tenancies across the private rental sector.

Concern is widespread within the student community, new research reveals, with 84% saying they are worried about about the Government’s plans.

While Ministers claim that blanket periodic tenancies will deliver greater certainty for both landlords and tenants in the general private rented sector, the NRLA says this will cause ‘widespread uncertainty’ for students as to whether housing will be available at the start of each academic year.

The looming Renters Reform Bill, which is due to be introduced in parliament in the New Year, will mean all housing, except purpose-built student blocks, will be subject to open-ended tenancies.

Landlords of traditional student properties therefore will be unable to offer guaranteed tenancies for the start of each academic year unless sitting tenants have handed in their notice to leave.

Students looking for housing will be unable to plan where they want to live and with whom they want to live, the NRLA says.

Exemption

The Government has made it clear that private purpose-built student accommodation will be exempt from plans to make every tenancy open ended, but the NRLA has told Ministers at a recent meeting that this must include the whole market.

The trade association has proposed that student landlords should be able to repossess a property with two months’ notice where it is required for new students each year. To provide protections, the earliest such notice could be served to sitting tenants would be in the last two months of a tenancy agreement, or at the 10th month of a 12-month fixed term.

“The student housing market works unlike any other, operating from one academic year to the next,” says Ben Beadle, Chief Executive of the NRLA (pictured).

“It is common sense that landlords should have certainty that accommodation can be made available for new students each year, as has already been reflected for the Purpose-Built Student Accommodation sector.

“Without changes the Government risk causing chaos, confusion and anxiety for students unable to plan where they live for the start of each academic year.”

In June this year LandlordZONE interviewed four leading student landlords over their attempts to persuade the Government that its period tenancy plans are misguided.

Read more: Plans to abolish fixed-term tenancies will 'ruin student market'. 

View Full Article: RISING panic reported among student landlords over plans for open-ended tenancies

Petition to reinstate mortgage interest tax relief?

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Since I reposted the petition link this morning, only 500 or so people have signed it!

I appreciate not everyone would have read the post, but why are Property 118 not sending this out daily to all their subscribers?

View Full Article: Petition to reinstate mortgage interest tax relief?

Certificate of lawful use as a HMO period required query?

admin    Uncategorized     agents

Hi Everyone, I hope you all are looking forward to as good a Christmas as you can.

I was curious of the definite answer, if possible, of getting a certificate of lawful use (for planning) for a HMO’s use immunity period and thus the application evidence period that is required for this?

View Full Article: Certificate of lawful use as a HMO period required query?