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Landlords in lockdown

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Published 9 April 2020

Much of the country has been shut down in an attempt to quell the Coronavirus onslaught. Only ‘essential’ occupations, businesses and services are functioning. And landlords are not included on the list.

This means many, if not most, landlords will face a drop in rental receipts, with no effective remedy to hand. New rentals will be on hold – or at the least extremely difficult.  Plans for increases to property portfolios will almost certainly have to wait, as will sales of rental properties.

Meanwhile, there has been no significant relaxations in landlord legal responsibilities either towards their tenants or their properties – although there have been some modifications in the way these responsibilities may be fulfilled.

There is some financial assistance available, but this is limited. There is also financial assistance available to most, but not all, tenants.

Meanwhile, landlords will have much to do – not least to promote a dialogue with their tenants so that both parties to the rental contract can limit the damage of the current crisis. Needless to say, such dialogues will be best conducted at long range – by email, phone or video link.

This need for communication between landlords and their tenants is emphasised in ‘non-statutory guidance for landlords and tenants’ issued by the Government.

The Government is urging all landlords and tenants to abide by its guidance on dealing with the Coronavirus crisis. It expects this guidance to be updated to reflect changing circumstances and suggests regular checks be made of its website.

Rental income

Government restrictions and advice do not change the legal relationship between landlords and tenants. Tenancy agreements continue to apply and rent remains payable in full. The big difference is that landlords have no way of enforcing this – repossessions have been halted and small claims court proceedings have little hope of going ahead for the time being, at least.

Government advice is that: ‘Most tenants will be able to pay rent as normal and should continue to do so, as they will remain liable for the rent during this period’.

But inevitably there will be large numbers of tenants who will be unable to pay rent ‘as normal’ and hopefully they will contact their landlords to let them know their difficulties. This is certainly what the Government advises. ‘Tenants should continue to pay rent and abide by all other terms of their tenancy agreement to the best of their ability. Tenants who are unable to do so should speak to their landlord at the earliest opportunity’, it says.

‘It is important that landlords offer support and understanding to tenants who may start to see their income fluctuate’, it adds

The National Landlords Association is advising landlords to discuss and be ‘as amenable as possible with payment arrangements’.

Options that landlords could consider include offering tenants temporary rent reductions and rental holidays. These will not reduce the amount owed over the course of the rental agreement. But, again, the NLA advises Landlords to be ‘sympathetic and amenable’ when it comes to repayment of arrears ‘when things return to normal’.

The Government suggests: ‘An early conversation between landlord and tenant can help both parties to agree a plan if tenants are struggling to pay their rent. This can include reaching a temporary agreement not to seek possession action for a period of time and instead accept a lower level of rent, or agree a plan to pay off arrears at a later date. Where a landlord does choose to serve notice seeking possession for rent arrears or has done so already, the notice period and any further action will be affected by legislation lengthening the notice period (to three months) and/or the suspension of possession claims. If a landlord and tenant agree a plan to pay off arrears at a later date, it is important they both stick to this plan, and that tenants talk to their landlord immediately if they are unable to do so’.

The extent to which landlords are able to respond to tenants’ financial difficulties will depend on their own financial circumstances. They are unlikely to qualify for many of the financial assistance measures announced for small businesses and the self-employed.

Although rental income is taxed under ‘Schedule D’ – the regime that applies to businesses – landlords have their own special rules and are unlikely to be treated as small businesses when it comes to grants and loans.

Exceptions include those landlords running their ‘businesses’ out of separate offices – when they will probably benefit from the business rates concessions and possibly small business grants – and those employing their own staff payed on a PAYE basis. Rental businesses run through a limited company with its own premises should be able to benefit from all of the Government help being extended to small businesses.

Financial help which should be available to all landlords includes buy-to-let mortgage holidays. Such holidays mean the amount owed is frozen for the duration of the holiday, but not interest on that amount. So, although mortgage holidays allow breathing space, they rack up interest which has to be paid off at a later date. Many buy-to-let mortgage providers now have online holiday application forms on their websites.

County Courts continue to operate in modified and restricted mode. Work is being prioritised. Cases that will still be heard include applications to halt enforcement of existing possession orders. Cases of a lower priority that may be heard include all small claim/fast track hearings where parties agree they are urgent.

Meanwhile, the Lord Chancellor has ordered a halt to proceedings for possession and those seeking to enforce an order for possession by a warrant or writ of possession. Such  are stayed for 90 days.

Most landlords will not be able to start possession proceedings unless they have given their tenants three-months’ notice. Landlords can choose to give more than this three months’ notice.

The Government ‘strongly advises’ landlords not to commence new notices seeking possession during the crisis without a very good reason to do so. ‘It is essential that we work together in these unprecedented circumstances to keep each other safe’, it says.

Another help, of the postponement rather than grant variety, is the deferment of Schedule D tax payments due in respect of last year’s rental income.

Those due to pay a second self-assessment payment on account by 31 July 2020 who have been adversely affected by the Coronavirus crisis may defer payment until January 2021. No application is required and there will be no penalties or interest for late payment provided payment is made by 31 January 2021. Further help is available from HM Revenue and Custom’s Time to Pay Scheme.

Landlords Legal Responsibilities during the Coronavirus crisis continues here….