ANALYSIS: Commercial landlords struggling under weight of debt

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When Covid support ends this summer, significant numbers of companies could be in financial distress as the pressure will really pile on.

There are a significant number of companies reported to be in significant financial distress as company debts rise at the fastest rate since the 2008-2010 recession.

Record numbers of UK commercial real estate companies could also be in default with their bank loans as the various schemes of government support come to an end this summer, that’s the view of insolvency specialists.

Dozens of commercial real-estate and other companies have shored up their balance sheets by increasing their loans during the pandemic, these loans surging to the highest level of loan finance since the financial crisis.

Defaults on commercial property debt are likely to rise significantly according to a University of London Business School study. The University’s survey found that loans either in default or in breach of one or more terms has reached 8.6% of all outstanding loans.

UK landlords have been temporarily banned from evicting commercial tenants who are in default. When tenants have failed to pay their rent, or failed to pay on time, since the coronavirus pandemic began, the government has imposed restrictions on landlords taking tenants to court or on evictions.

Evictions hit

This has hit landlord owners in the retail and hospitality sector particularly hard and it has in turn spurred the decline in retail store values, resulting in some companies breaching their loan agreements by default.

As the 30th of June arrives, many commercial landlords in England will expect to breathe a sigh of relief as they should be in a position to reassert some authority over their non-paying tenants.

However, their troubles may not be over yet as many tenants will be unable to pay in full in the short term and the government is currently seeking views on possible next steps to be taken to ease the way out of the crisis for struggling tenants.  

Current position

• There is a moratorium on forfeiture until 30 June 2021;]
• Recovery for commercial rent arrears (CRAR) cannot be used unless tenants owe at least 457 days’ rent between 25 March – 23 June 2021, and 554 days’ rent between the 24 – 30 June 2021.
• There is a temporary ban on issuing winding-up petitions where debts are as a result of the pandemic, again until 30 June 2021.

More generally, in the whole economy, around 100,000 are said to have been in some form of distress in the first three months of this year compared with the last quarter of 2020. That is despite the government’s ban on winding-up petitions.

Further, over 720,000 businesses are now said to be in significant financial distress according to data from insolvency practitioners, Begbies Traynor, who say that this figure represents a 15 per cent rise from the previous quarter and the largest increase since the company’s data research began in 2014.

Begbies Traynor has found that companies in financial difficulty now span all 22 sectors of the economy which strongly indicates a broad and gradually deteriorating financial situation in the UK economy.  

The outlook for many companies seems particularly gloomy at present when bankers and insolvency practitioners are issuing strong warnings that the UK is facing widespread business failures. This could be exacerbated when the government winds down its Covid support measures, especially if this results in a “cliff-edge” scenario at the end of June when landlords start to demand repayment of up to 12 month’s outstanding rent.  

In danger

Some retailers, hotels and restaurant businesses will be in danger of having to hand back their keys unless they see a fairly rapid improvement in trading or they can come to some negotiated settlement with their landlords.

Many so called “zombie” businesses have only just been able to stay afloat using government support and are the most likely to go to the wall.

Julie Palmer, partner at Begbies Traynor (pictured) tells the FT: “The dam of zombie businesses could be about to break.

“Unmanageable levels of debts and subsequent overtrading are likely to be the hidden icebergs waiting to sink even the highest profile businesses.”

Ric Traynor, executive chair of Begbies Traynor, says: “Despite the unprecedented central government support offered to UK businesses, it is now clear that many companies are struggling under the weight of increased debt combined with poor revenue streams.”

Read more about commercial property and Covid.

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City firm to spend hoover up 2,000 rental properties and ‘professionalise’ them

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A big new business venture aims to give private landlords a run for their money by buying up and refurbishing thousands of rental properties.

Real estate fund manager, Moorfield Group, and PropTech residential investment platform, Bricklane, have joined forces to invest £600 million in buying up 2,000 one to four-bedroom houses and flats over the next two years, mainly in London, Bristol and the South East – and “professionalise” them.

They plan to target rental properties expected to outperform in those areas, and then to grow income and capital values through active asset management and refurbishing them to provide professional, high spec properties for tenants.

By focusing particularly on the 98% of the rental market owned by the UK’s 2.5 million buy-to-let landlords, it expects to deliver attractive returns and provide quality homes to a wider range of tenants, while also avoiding the carbon-cost of demolition and building new homes.

Rise of BTR

Bricklane this partnership sees the UK beginning to follow the example of the US single-family (or build to rent) residential market, where institutional investment in existing properties has grown from almost nothing to $40 billion in ten years.

Simon Heawood, CEO and co-founder of Bricklane, says: “The time is ripe for institutional capital to access and professionalise the mainstream private rented sector.

“Demand is at an all-time high, while it is becoming less financially attractive for individual landlords to operate in the sector. Moreover, tenants are rightly demanding higher quality service and more secure contracts for their homes.”

Properties will be managed by Bricklane through its proprietary technology platform, Compass.

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OMG! 18-34 year olds are getting into trouble with Buy now Pay later

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A quarter of young people making Buy Now Pay Later repayments haven’t been able to pay for food, rent or bills as a result, Citizens Advice has found.

New research from Citizens Advice shows 45% of 18 to 34 year olds in the UK have used Buy Now Pay Later in the last 12 months.

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New Class MA Is a Game Changer!

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New Permitted Development Rights will take effect from the 1st of August 2021. Class MA New Permitted Development Rights offer Commercial Property Investors new opportunities to profit from the commercial to residential strategy.

We’re talking Class MA, an absolute game changer! 

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Controversial landlord wins appeal against Scottish government register ban

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David Love, a landlord who was refused entry to the Scottish Letting Agency Register after the Scots government claimed that he was not ‘fit and proper persons to carry out letting agency work’ has won his appeal against the decision.

Love, who is both a landlord, former professional boxer and owner of estate agency David Love Property, has become of familiar face among those who read Scotland’s newspapers, who have written about his unusual eviction tactics.

He also appeared on TV show Judge Rinder two years ago to fight claims that he unfairly evicted a tenant when he ejected all her belongings from her apartment onto a communal lawn below. He won the case including costs.

Love has now won his latest legal wrangle after taking the Scottish government to a First-Tier Tribunal over their decision to exclude him and his agency from the Scottish Letting Agency Register.

Professional landlord

In his statements to the court, he said “I am a professional landlord and businessman. I have a clean criminal record.

“There is no legal reason for this decision. I have not committed any crimes. I have been accused of a crime, but the accusations are false”.

It is claimed by Love that the Scottish government did not give sufficient reasoning for his exclusion from the register other than a pending criminal prosecution and a failure to attend court.

Before the Tribunal’s judgement published yesterday, the Scottish government subsequently had already agreed with this point, and told the tribunal that it no longer opposed the appeal.

The Tribunal has directed that Love and his company should be entered into the letting agent register.

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Landlord celebrates bittersweet eviction victory after tenant costs her £85,000

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A landlord is celebrating finally getting her flat back after waiting for more than a year to evict her errant tenant.

Lilyanna Markova, who works in a cosmetic clinic, built up losses totalling more than £35,000 in back rent and legal costs after the tenant refused to pay rent or move out – and was then caught up in the courts backlog. She’s extremely glad to have the flat back.

“I feel very happy,” Lilyanna tells LandlordZONE. “It’s been so much stress and I’m glad it’s finally over.”

However, her victory is bitter-sweet as she estimates it will cost at least £50,000 to carry out all the necessary repairs after the tenant left it in an appalling state.

She adds: “I had thought about moving into the property but I just want to sell it now as there are too many bad memories.”

Erratic payments

Lilyanna first rented out her two-bedroom flat to the tenant and her three children near London city airport in September 2017 and rent payments were erratic or non-existent from the start.

When she tried unsuccessfully to serve a Section 21 notice in 2018, the tenant countered with a compensation demand for problems caused by damp.

Since then, court hearings have been constantly delayed and she’s had a particularly difficult time during the pandemic after being herself evicted from her rented central London flat last September when the landlord needed it back.

She’s been living in an Airbnb for months and relying on friends’ help to pay bills ever since.

Her story was featured on BBC London News as part of an investigation into rent arrears and evictions, alongside Landlord Action’s Paul Shamplina who helped with the evictions process.

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BREAKING: ITV’s ‘mouldy homes’ probe prompts calls for compulsory landlord redress scheme

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An ITV news investigation aired last night has heavily criticised the government for its lack of progress to enable tenants in both the social and private rented sectors to complain about sub-standard homes.

Reported Daniel Hewitt spent six weeks touring mouldy and poorly-maintained homes interviewing tenants unable to prompt councils and housing associations into action.

The hour-long programme claimed the social sector’s Housing Ombudsman complaint system ‘clearly isn’t working’ and that tenants in private accommodation who rent directly off their landlords were largely powerless.

Private landlords are not required by law to join a redress scheme, and tenants usually have only their local Trading Standards or Environmental Health teams to turn to, many of which are either under-staffed or over-stretched.

Private tenants can also access redress if they dispute deductions from their deposit, assuming their landlord has lodged it with an approved scheme, or complain about their letting agent’s service if their landlord uses one.

But otherwise they are in limbo says Sean Hooker (pictured), Head of Redress at the Property Redress Scheme (PRS). He says it is time the government introduced a mandatory landlord redress scheme.

“When you are forced to live for long periods of time with a problem such as a disrepair or the condition of a property, the impact and distress on tenants is compounded,” he says.

“A requirement for all landlords to register with a redress scheme would mean that the whole private sector would be accountable to a complaint process.”

Hooker says the PRS is already working with the Housing Ombudsman, First Tier tribunals and The Property Ombudsman to move to a single gateway for all tenants to access the complaint service they need. 

“The concept would be that complainants would be able have their complaint signposted to the right service, that data could be shared allowing the complaint to be effectively dealt with as quickly and effectively as possible.”

Read more about the Housing Ombudsman.

Read more about the ITV investigation.

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Leading Berkshire landlord fined over HMO safety breaches

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Rogue landlord Nidan Singh has been fined £6,000 for ignoring a long list of problems at his Reading HMO.

Singh, 76, from Earley, admitted six offences under the Housing Acting for failing to comply with HMO regulations and admitted one offence of failing to comply with two enforcement notices.

Reading Borough Council housing team officers inspected his property in London Road twice in 2019 and found defects including faulty fire detectors, a bathroom in significant disrepair with large areas of missing wall tiles and the toilet seat held on by string, a rat hole and droppings in the kitchen, and damage to a fire door.

Several radiators had also been removed from the central heating system.

Singh was fined and also ordered to pay £1,956 costs and a £181 victim surcharge.

Substandard accommodation

James Crosbie, interim assistant director, planning, transport and regulatory services, says: “We continue to bring successful prosecutions against landlords who offer substandard accommodation.

“Our goal is for all residents to live in quality accommodation and where this is not the case we will do everything in our power to change that. Reading’s landlords must do more to ensure they comply with the rules, or we will take action.”

But Singh got off lightly compared to another landlord, Mohammed Naseer Zamir, who was fined £66,000 for similar offences in January.

HMO plans

In the meantime, Singh has applied to build a property on land in Eastern Avenue, Reading, sparking complaints from local residents that although the original application was for a two-bedroom home, this was changed to a four-bed property.

They fear it will eventually become an HMO with not enough room in the street for parking.

Read about Reading council’s HMO scheme.

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LATEST: Leading veterinary body urges more landlords to accept pets

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Influential veterinary organisation the National Office of Animal Health (NOAH) has launched a campaign urging landlords to let more renters live with their pets.

The body, which represents the UK animal medicine industry, hopes to encourage wider use of the model tenancy agreement and wants to work with landlords and tenants’ associations to promote new pet-friendly policies and responsible pet ownership.

As part of its campaign – Securing the Right to Rent with Pets: Making One Health Housing a Reality – it’s urging supporters to send a letter to their local MP or the Housing Minister, Christopher Pincher, calling on him to make legislative changes to support pets in rented accommodation.

NOAH believes that despite the significant and clear benefits, owning a pet in rented accommodation remains very difficult.

It says that according to rental start-up Home Made, only 2.8% of property owners in the UK advertise homes as suitable for tenants with pets, while Tenants Voice reports that 78% of pet owners experience problems finding a suitable rental property.

Chief executive Dawn Howard (pictured) believes that widening access to pets will actually bring benefits to landlords that outweigh their often-inflated fears.

She adds: “The RSPCA found that tenants who are given permission to look after a pet in their rental property were likely to live in that property for twice as long compared to other tenants – creating long-term, secure tenants for landlords.

“Allowing responsibly kept pets also increases the pool of prospective renters for properties, meaning landlords are far less likely to struggle to find tenants, and will in turn have a more secure stream of income.”

In January, the government updated its model tenancy agreement, aiming to end blanket bans on pets in rental properties.

However, the agreement is voluntary, and it has since hardened its position on the hurdles that tenants will have to clear before a landlord needs to allow pets into their property.

PIC Credit: Antti | Flickr

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BREAKING: Carbon Monoxide alarm laws need reform, says MP

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An MP has gained support for proposals to make carbon monoxide (CO) alarms compulsory in any room of a rented property containing a fuel-burning appliance.

As the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 currently stand, landlords are only required to install CO alarms in rooms where there is a solid-fuel appliance such as a wood burner or open fire, and checked at the beginning of each tenancy.

But MP Stephanie Peacock (main pic), Labour’s Shadow Minister for Environment, Food and Rural Affairs, told parliament that following several tragic cases, rooms containing gas-burning appliances such as boilers should also be fitted with the alarms, and the requirement made compulsory.

Currently, the government’s own guidance is that it only ‘expects and encourages’ reputable landlords to fit alarms in room containing gas appliances.

“Many campaigns, such as CO-Gas Safety, led by its hard-working president, Stephanie Trotter, and the all-party parliamentary carbon monoxide group, and many survivors and victims’ families have lobbied the Government for decades to raise awareness and change the law, with very limited success,” she said.

“That is where the law is incredibly weak. We know that gas appliances can and sometimes do emit deadly carbon monoxide gases.”

She also said that a government consultation on the matter, which closed in January this year, has yet to produce any action from within Whitehall.

Property installation

Following her remarks, Minister Paul Scully – whose BEIS department has responsibility for this issue – revealed that a cross-Whitehall group had by coincidence met earlier this week to discuss the issue of carbon monoxide poisonings which, although in decline, still kill 50 people a year and hospitalise hundreds.

“I reiterate that carbon monoxide alarms are a useful additional precaution, but they are not a substitute for proper installation, maintenance and the safety checks of combustion appliances,” he said.

“We say to landlords: ensure that you know the legal and moral obligations on you towards the safety of your tenants from the risk of carbon monoxide poisoning.”

Conservative MP Peter Bottomley (pictured), who has been campaigning on the issue for many years, said: “May I suggest to the Minister that he invite Stephanie Trotter, who has been doing this work for 25 years, and representatives of the all-party group to a meeting with him, advised by the HSE, along with the National Residential Landlords Association?

“If the good landlords are doing what they should, the bad ones need to be encouraged.”

Read more about CO alarms.

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