Jeremy Stephen's view on how the Coronavirus outbreak has impacted real estate and how the industry has reacted
Most tenants have been asking their landlords for some form of assistance with their rent going forward. Some have asked to pay rent monthly, some have asked for a deferral, and some have asked for rents to be waived entirely for the time being.
In most cases, there will not be any specific contractual right to allow a tenant to do this, so it will depend on the attitude of the individual landlords.
On the whole, landlords and tenants have probably been hit equally as hard. Tenants, particularly in the retail sector, have seen revenues collapse. For many, whether or not they can afford to pay their rent is a major cash flow issue.
Equally, landlords rely on the income from tenants to operate. Take a shopping centre owner as an example: if all the tenants decline to pay their rents on time, that landlord may suddenly find itself facing a major income shortfall that may run into the millions.
If tenants are also struggling to pay service charges, then that will directly affect the ability of the landlord to run essential services for the property – such as paying security staff.
We will probably come to see that the banks will play a fundamental role in how this all plays out.
Many landlords rely on finance from banks and will be subject to lending covenants – which may well be breached if their income falls significantly. The amount of "flex" landlords can provide to tenants, will likely depend on how flexible the landlords' banks are likely to be in turn.
It is too early to tell at this stage, though clearly the risk of businesses falling into insolvency will increase the longer the lockdown continues.
It may well be that it is not in a landlord's interest to take drastic action to force tenants to comply with their leases. If tenants go out of business, then this will leave the landlord facing a void in an uncertain market once restrictions are lifted.
Some landlords may consider it is best to hold off taking enforcement action and support their tenants, in the knowledge that it is better to have a tenant who can swiftly pick up its trade and be open for business post lockdown, then it would be to try to find a new tenant.
Again, though, this ultimately depends on how much time landlords can afford to give.
Unquestionably there is a lot of money being made available – but it is not yet clear how this will filter down into the Real Estate market. If some business have more cash, that clearly helps, but the cash flow is not unlimited, and businesses have many cost demands of which property is only one.
The new business rates measures being announced and worked through do have a more direct impact on Real Estate users, though this is only one part of the picture.
No doubt there will be a good deal of euphoria when the shops and restaurants can finally re-open for business – but all sectors of the Real Estate industry will emerge from this crisis with far more debt than they had when it started.
Whether those debts can be serviced in the "normal" way, is an open question and it is possible that the sector may need to consider the question of debt relief, in order to properly plan for the future.