The COVID-19 pandemic has continued to dominate just about every aspect of our private and business lives. This is especially the case for the commercial property sector.
In the office sector, the pandemic has resulted in a wholesale move to remote home working. Undoubtedly, this seismic shift will affect future demand for, and utilisation of, office space with a ripple effect on complementary services.
Recent reports suggest that many offices will move away from traditional permanent desking towards a more flexible usage pattern of open meeting spaces, hot desking, greater sharing of common facilities and even, possibly, the end of the five day office week.
As we recover from the pandemic, these changes in working practices are not, of course, going to be fully reversed.
Many employers, both large and small, and their employees, have signalled their preference for a more blended and agile working arrangement, BP recently announced that office based staff would be expected to work from home two days a week while some organisations, such as Twitter have indicated that home working is now the only option.
With regard to commercial tenancy issues, in late 2020 the government announced the creation of a review of commercial landlord and tenant legislation. The review will consider a broad range of issues including Part II of the Landlord and Tenant Act 1954 (LTA 1954), different models of rent payment and the impact of COVID-19 on the market.
Business tenants affected by COVID-19 will continue to benefit, until 30 June 2021 (subject to the date being extended), from:
- Protections from forfeiture for non-payment of rent. This will bring the length of time business tenants have been given support from the threat of eviction to over a year
- Restrictions on landlords recovering unpaid rent by the exercise of commercial rent arrears recovery
Commercial Property Predictions for 2021
- We would expect to see Landlords coming under pressure from Tenants with retail or office space wanting to end or vary their leases
- Where a Landlord and Tenant cannot agree a way forward it is likely that that both parties will need to seek professional advice to resolve the dispute
- In addition there is a real chance that Guarantors under Limited Company tenancies will find their guarantees being called upon where the Company defaults
- Inevitably with Tenants giving up properties and Landlords not guaranteed to find an occupier very quickly there are likely to be disputes between parties where dilapidations arise. Commercial Surveyors acting on behalf of a Landlord will no doubt seek to maximise the extent and costs of dilapidations whereas the Tenant will seek to resist this. There will be a requirement for representation on both sides of the dispute. Experienced commercial surveyors will be needed to deal with contested dilapidation issues.
- Given that agreeing terms on a lease renewals is likely to be harder than usual (given the state of the market) it may well be sensible for Landlords or Tenants to go down the statutory route of issuing notices under Section 25 (Landlord) and Section 26 (Tenant) of the Landlord and Tenant Act 1954. Previously going down the Section 25 or Section 26 route was often seen as unnecessary as agreeing terms on a renewal lease was usually the cheapest and quickest course of action. However the current situation may mean that accelerating matters using the statutory procedure will enable agreements to be reached quicker than letting negotiations drift.
- Once the Covid-19 restrictions in respect of forfeiture for non-payment of rent are lifted there is likely to be a demands for action to be taken by Landlords against Tenants whether to recover rent arrears or/and forfeit their leases.
At the beginning of April the government issued a call for evidence to support its decision making on the best way to withdraw, replace or exit the ‘pandemic measures’ relating to commercial lease evictions in England referred to above. The stated aim is that
“… the government aims to understand how landlords and tenants are responding to the build-up of rent arrears that has occurred due to businesses being unable to trade normally during the pandemic. The evidence will inform government policy.”
What is clear is that at some point, whether sooner or later, and as with other elements of society, there will be a day of reckoning for both Landlords and Tenants and chances are that day may well be in 2021