The UK property market is booming: rents are rising, yields are improving and interest rates have been held at 0.5% for a record five years – what could go wrong? Well, we have been here before and historically there has been a property ‘correction’ every eight to ten years. Good quality tenants are a protection against voids and can help preserve asset values.
With a recent change in legislation covering a landlord’s right and ability to recover arrears of rent, Moore Stephens’ Tenant Covenant Review team believes that now is the right time for landlords and managing agents to review tenants’ covenants and make sure that tenants will be able to continue to meet all rent obligations, particularly given the increasing likelihood of an increase in interest rates.
A landlord’s ancient right of distress to recover arrears of rent was abolished on 6 April 2014. In its place, is a new statutory regime for Commercial Rent Arrears Recovery (CRAR).
Key aspects of CRAR
- Lease must be in writing.
- Commercial premises only.
- Rent only (plus VAT and interest).
- Must give seven clear days’ notice in writing before entering premises to seize goods.
- Exercised by Enforcement Agent.
- Notice to sub-tenant to redirect rent takes effect 14 days after service.
Miles Needham of Moore Stephens’ Corporate Advisory Services team comments: “Whilst a landlord will always want to avoid the situation where a tenant is in arrears of rent, the change in legislation has arguably weakened the power of the landlord to threaten distress or to act quickly to seize goods to recover arrears of rent.”
The change in legislation has brought the position of the landlord more in line with other creditors. It is therefore more important that ever for a landlord to understand the current and future ability of a tenant to pay rents and, where possible, to take security.
How Moore Stephens can help
Moore Stephens’ Tenant Covenant Review team is a multi-disciplined team, drawing expertise from the Real Estate Specialist Sector group, Corporate Advisory Services, Tax and Corporate Finance teams.
The team regularly undertakes desktop reviews of proposed tenants in support of a new lease or of existing tenants in support of an asset purchase.
We also undertake more complex assignments to assist landlords and managing agents in fully understanding the financial health of a tenant when faced with a request for a rent reduction, or other material change in the lease, or when a tenant is in financial distress and faces the threat of insolvency. The Tenant Covenant Review team are able to quickly assess the tenant’s situation and provide a recommendation to the landlord or managing agent.
First published by Moore Stephens London, October 2014