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Published 3 abril 2020
The impact of recent restrictions to deal with COVID-19 on the commercial leasehold property market cannot be underestimated. Both landlords and tenants are understandably concerned about what this will mean for their businesses. Thankfully, there are a raft measures being introduced in Scotland that should help to soften the blow for the short term. We take look at some of the key issues and trends below:-
Hot on the heels of the UK Government’s Coronavirus Act 2020 passed last week, the Coronavirus (Scotland) Bill cantered its way through the Scottish Parliament on Wednesday and is expected to receive Royal Assent shortly.
• The key point to take from the Bill is that a hold has effectively been put on landlords’ ability to terminate leases and recover possession of properties for tenants failing to pay their rent on time. This will be in place for at least the next 14 weeks.
• The hold does not apply to non-monetary breaches, so in theory landlords can still terminate leases for any other types of lease breaches. This can only be done though if the breaches are significant and where it would be fair and reasonable. This bar will likely be a lot harder for landlords to reach in the current circumstances.
• The Bill does not prevent landlords from using other options to enforce payment either. As the Scottish courts and process servers are restricting their services and currently dealing with nothing but urgent business, however, landlords are in practice likely to face an uphill struggle following through on any enforcement.
The Scottish Government has also made changes to business rates for 2020-21:-
• Retail, hospitality and leisure businesses will be given an automatic 100% rates relief for their properties, but only if they are still occupied. Properties that have closed temporarily due to the current restrictions will, however, be treated as occupied for the purpose of this relief.
• (Update 15 April) Scottish Government has now extended its Coronavirus Small Business Grant scheme to offer a 100% grant on first premises and a 75% grant on all subsequent properties. Still not in line with England/Wales but an improvement on the position at the outset in Scotland where only one grant was available per business, irrespective of the number of premises.
• All other non-domestic properties in Scotland will also be granted an automatic rates relief of 1.6%.
A number of non-repayable grants have also been introduced to offer additional financial support to businesses, which will be available until 31 March 2021:-
• Retail, hospitality and leisure businesses who occupy properties with rateable values of between £18,001 and £51,000 can apply for a one-off grant of £25,000.
• A one-off grant of £10,000 will also be available to the following:-
o Small businesses in receipt of Small Business Bonus Scheme relief (SBBS) or Rural Relief; ando Businesses who have applied for Nursery Relief, Business Growth Accelerator Relief, Disabled Relief or Fresh Start, but are eligible for SBBS.
• To qualify for SBBS, the combined rateable value of a business’ properties, across all of those properties, has to be £35k or less. The ratable value of each of those properties also has to be £18k or less.
Despite the relaxation on enforcement, tenants should be wary about refusing to pay rent during this time, as doing so would still put them in breach of their lease and leave them exposed.
One way that tenants are looking to manage this exposure is to agree on rent reduction or deferment periods with their landlords. While some landlords will be unwilling to take the risk of putting off payments to a later date, others will see the benefit in this if it helps to maintain the liquidity of their tenants in the long term.
There has been a recent influx of this in England, given the most recent English quarterly payment date on 25 March. We will no doubt start to see this more in Scotland as we approach the next Scottish quarterly payment date on 28 May.
Many landlords and tenants are also starting to look to contractual compliance in their leases and whether coronavirus clauses can be inserted to help protect them going forward.
Examples of these include restricting landlords’ and tenants’ obligations to keep Centres and individual Premises open for as long as Government restrictions are in place. We will likely see more of this cropping up in new leases and variations going forward.
We are not out of the woods yet and further measures being introduced by the Scottish Government would seem to be inevitable at this stage.
For example we expect that, depending on how the market reacts to the latest measures, the Scottish and UK Governments could look at putting a hold on other options for enforcing rental payments. As we set out above, these have not yet been dealt with in the latest legislation.
Only time will tell though, so we will have to wait to see what happens depending on how things develop.
The global pandemic has changed the world drastically for us all, and as the UK and Scottish Governments keep informing us, things will get worse before they get better. Landlords and tenants are therefore likely to face further uncertain times ahead.
These latest measures and approaches that we are starting to see emerge should, however, hopefully go some way to lessen the impact.
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