COVID-19: Property FAQs for charities
Our latest blog post for our charities COVID-19 Hub looks at property related FAQs we have received from clients. In the circumstances, a significant number of charities have concerns in this area, be that because they cannot occupy the premises they use as part of their charitable activities, or for example, they have tenants in an investment property who cannot pay rent. If any of the matters covered below affect you and you would like to speak to someone about it, please do get in touch with your usual BDB Pitmans contact.
These responses will also be made available on our COVID-19 Hub. Here you can also access updates in-between our email postings, as well as some other property FAQs produced in respect of wider property related concerns, beyond those specific to the charity sector. We have also signposted you below to our other more specific property FAQs where we think they provide helpful additional information.
1 Can we get a rent holiday from our landlord?
A tenant remains under an obligation to pay rent notwithstanding the current COVID-19 crisis. This remains the case even if the building closes due to the outbreak of the virus and/or if the government passes regulations stating that buildings have to shut.
It would certainly be prudent to ask your landlord if you can have a rent holiday, pay reduced rent or pay monthly, particularly in consideration of your cash flow forecasts, with a view to ensuring you can continue to meet your charitable objects. The landlord does not have to agree to this, but it is worthwhile starting a dialogue early as landlords may be more likely to agree to a rent concessions in the current climate.
If your landlord does agree a rent concession you must make sure this is documented in a deed of variation or side letter. A deed of variation is preferable for a tenant because it is a permanent change to your lease, but a side letter is also acceptable as a temporary amendment.
In the event that the landlord does not agree to a rent payment holiday and you decide not to pay the rent, there is some respite for tenants granted through the COVID-19 legislation. Under the new temporary legislation, if a tenant is not able to pay the rent a landlord cannot forfeit the lease for non-payment of rent until 30 June 2020 (or later if agreed).
There are other options for landlords to collect non-payment of rent, for example dipping into a rent deposit, a debt claim and service of a statutory demand. However, some of these options may be limited as most court proceedings are likely to be delayed due to the pandemic. The Companies Court in particular has, from 23 March 2020, adjourned all winding-up petitions for a minimum of three months.
Trustees should of course keep in mind whether the property they rent is central to achieving their charity’s objects, and should carefully consider whether forfeiting a lease is in their beneficiaries’ best interest.
Our team has produced these FAQs, which we hope are also helpful on this topic. If you do find that you need further financial assistance, with a rent holiday or not, please also consider the points raised in our FAQs on charity finance and funding.
2 We are not able to occupy our premises because of government measures – is there anything we can do to help ourselves because of this?
In the event the charity occupies its premises as a tenant, unless it has a fortuitously timed tenant’s break option, the likely scenario is that its lease and obligations will continue as before, as set out above. This is the case even if it cannot legitimately occupy the premises due to the COVID-19 crisis.
A well advised tenant will check their lease to establish what they are required to do when it cannot continue business as usual from its building. It should also have a discussion with its landlord about rent concessions or non-payment of rent, as discussed above.
If you are able to hand the property back, you should keep in mind whether in the longer term, when the current lockdown measures are relaxed, you will be able to continue to meet your charitable objects if you do not have the premises.
These FAQs look specifically at this point.
Whether an owner occupier or a tenant, the charity should also consider carefully any insurance requirements it has for both the business premises and for business interruption.
The Association of British Insurers (ABI) has helpful advice on its website including a Q&A on the most common types of insurance issues under consideration.
3 We have some property that we let out. Our tenants are asking for a rent holiday due to coronavirus. We want to agree in the circumstances, but feel it may conflict with our duties to get the best return for the property for our charity. What do we do?
Trustee do have a general duty to maximise assets for their beneficiaries. Added considerations at this time include whether your tenants are in fact part of an organisation whose activities also further your charitable objects (and so accepting a reduced rent could possibly still be in pursuit of your charity’s aims) and also whether, in reality, you would be likely to get any tenant who would be able to pay you full rent during this time. It may be, in the circumstances, that reduced rent is better than no rent; clearly the former is better for your beneficiaries.
However, provided you have the power to do so, it is of course within your discretion whether you agree to your tenant having a rent holiday, or consider other options such as paying reduced rent or paying monthly to ease cash-flow. Generally, the tenant has to continue to pay rent under the lease and rent is not suspended due to COVID-19.
Given these unprecedented times, institutional landlords have been offering tenants some respite from quarterly advance rent payments in response to requests for concessions. Measures range from simply agreeing an alternative monthly payment pattern to waiving the rent for a period in its entirety. There are other options which the trustees may consider, such as collecting deferred rent in instalments along with subsequent rent payments, with or without interest applying. Landlords are also using rent concessions to obtain advantages such as an extension of the lease term, the removal of a break right or the improvement of rent review provisions applying later in the term.
Charities should be able to look to these actions taken by institutional landlords in making their own decisions and the overall aim of the charity should be to maximise the charity’s asset and income, which the trustees may, depending upon the circumstances, decide means preserving the tenancy and the ongoing income unless they have a compelling alternative lined up. However, if you are contractually due payments, and decide to forego these to some extent, you need to be clear about the basis for doing so. If it is, say, as a gesture of goodwill or because you feel empathy for the tenant, rather than as a result of a negotiation which the trustees consider expedient in the best interests of the charity as the most appropriate means to protect the charity’s income, then because you are a charity you may be making what is known as an ‘ex gratia’ payment. If so, it could mean you need Charity Commission consent. If this is the case, or if you are not sure, then we’d be pleased to discuss the implications with you.
If you do decide you are willing to offer a rent concession then you should document any such agreement in a side letter which sets out the changes and for how long it will last as a temporary arrangement. Your tenant may ask for a deed of variation which is a permanent change to the lease, but a side letter is preferable for landlords.
If you decide not to offer a rent holiday and the tenant defaults on the rent as a result, then under current emergency measures you will not be able to forfeit the lease until 30 June 2020 (or later if the government extends this date). There are other options available to the landlord for non-payment of rent (eg drawing down on a rent deposit, debt claim and service of a statutory demand). However, as noted above, most court proceedings are likely to be delayed due to the COVID-19 pandemic. The Companies Court in particular has, from 23 March 2020, adjourned all winding-up petitions for a minimum of three months.
In conclusion, it may therefore be in the interests of both parties to try and agree an interim solution on payment of rent (eg either a reduction or suspension). A good landlord and tenant relationship in current times is a valuable commodity, not least because the landlord cannot currently evict its tenant or, even if it could, find a replacement tenant. In reaching any negotiated solution, however, the trustees need to be mindful of their duties as charity trustees (and you can review the Charity Commission’s guidance CC3 as a useful reminder of what these all are), as ever, particularly to make a proper, informed decision and to record that decision carefully.
4 We own/occupy property – what help is available for us?
A number of business rates reliefs and cash grants have been announced to support organisations. These include charities, in the retail, hospitality and leisure sectors, which may include charity shops, sports grounds and clubs, museums and art galleries, sport and leisure facilities, stately homes and historic houses, theatres and tourist attractions.
There is some more information about reliefs available to charities on our finance and funding FAQs, with further details below. You can find more details about the measures set out below here, on the government’s website.
One of these measures is for a 12 month suspension, for the 2020 to 2021 tax year, on the payment of business rates, in an attempt to limit the financial impact caused by the outbreak of COVID-19. This is being referred to as ‘the Business Rates Holiday’.
The relief will be applied automatically to the council tax bill in April 2020, although the government has warned that local authorities may need to reissue your council tax bill to take account of this.
The Chancellor has also confirmed that there is no limit of the rateable values of property that can claim this relief, and if multiple premises are occupied, the relief will apply to each premises.
Business rates grant
The business rates relief is supplemented by a cash grant of up to £25,000 per eligible property with a rateable value above £15,000 and below £51,000. This extends to those in the retail, hospitality and leisure sector. The grant could be particularly helpful to charities with chains of shops, for example.
It is understood that this will be issued by local authorities directly. There is therefore no need to claim unless you think the local authority is not aware of your eligibility for the grants.
Small business grant
For smaller businesses there is also a £10,000 cash grant available from the local authorities. It is intended for those businesses that pay little or no business rates and are eligible for small business rate relief (SBBR) or rural rate relief.
However, unfortunately it looks doubtful that small charities will benefit from these grants (probably on the basis of the existing charity reliefs available), but groups such as the Charity Finance Group and the Small Charities Coalition, as well as some MPs, are seeking clarification from the government on this point – more information here.
The Charity Tax Group has produced a helpful guide on how the above three reliefs interact with pre-existing reliefs available to charities.
Empty Property Relief
For charities whose property or property portfolios do not benefit from the COVID-19 reliefs, it may be worth exploring a claim for empty property relief where the government has advised occupiers not to enter its premises.
Protection from eviction
As noted above, under the emergency Coronavirus legislation, commercial tenants are protected from eviction until 30 June 2020 (unless extended) in the event that they are unable to pay rent on the premises that they occupy.
As we have made clear before in this blog, it is important to remember that, whatever challenges you are facing, there will be many other charities facing similar challenges and the regulators and your supporters will understand that you are making decisions in the most difficult of situations.
More information is being provided daily by government, but there is still a lot of uncertainty. Because of this, it will be crucial that, as you face the prospect of having to make important decisions for your charity, your decision making processes take account of strong governance practices – you should make sure you are recording decisions appropriately, taking minutes and making notes of the information you had available to you at the time.
We will be writing up further FAQs soon, but do let us know if you have any urgent questions in the meantime.