Deal with immediate problems
Paul Jagger, partner at Glovers Solicitors, said that businesses should deal with the immediate issues first, including rent payment.
He said: “For the majority of commercial tenants, rent is now due in advance for a whole quarter up to the end of June. If a tenant does not pay their rent then the landlord can forfeit the lease (i.e. evict the tenant).
“The government has put a stop to landlords being able to take this action for a period of 3 months. This does not mean that the rent is cancelled or the obligation to pay goes away, it simply delays the ability for a landlord to evict a tenant for non-payment of rent. Tenants will have some breathing room, but the problem of paying rent remains.”
He also advises business owners to open negotiations and channels of communication with landlords, in order to inform them of the situation.
He said: “Channels of communication should be opened with your landlord as soon as possible. Unfortunately, most commercial leases will not cater for unprecedented events such as the current pandemic.
“It is highly unlikely that legal concepts you may have heard of such as ‘frustration’ and ‘force majeure’ will assist tenants in either avoiding their rent or ending a lease.
“The government has indicated that, for now, they have intervened as much as they can, and their position is that tenants and landlords come together to find a solution for their individual predicaments. With the temporary ban on eviction in place, now is the time for commercial negotiations to take place.
Finally, he advises businesses to be creative and encourages landlords and tenants “to come together” in order to find a solution.
He said that he’s seen examples of landlords agreeing to cancel the March quarter’s rent, or halving the amount owed for the quarter. He has also seen businesses agree a rent reduction, putting payment plans in place for the eventual repayment of the amount due.
In addition, some have opted to defer payment of the rent, although he says this still places “all of the financial burden on the tenant”.
Some pubs have already made arrangements with their tenants. Greene King has delayed rent collection and associated payments until further notice and Young’s has enforced a rent holiday for three months.
Brewer Thwaites has also delayed rent collection until the end of April, as has Star Pubs & Bars.
Check the small print
Rose Smith, a senior associate at Doyle Clayton, advises companies to check the small print before they decide what to do.
She said that while support schemes have been announced, and the government says they will be running by “late April”, it is still unclear when money will be coming in.
“It is not clear if this will include redundancy situations, or whether and how employers will need to demonstrate the fact the employee is not required to work,” she added.
Smith also stated that business owners must agree with affected staff that they will stay on the payroll, but not attend work. Agreement must also be given for any reduced pay. Businesses must also communicate whether they intend to top up the additional 20% of staff salaries, or whether workers will be expected to take a pay cut.
She also advised companies to find out exactly how much money they would be eligible for, and what further costs need to be paid. This must then be communicated clearly to workers.
“It seems that funds made available to businesses through the grant scheme are intended to cover total employment costs rather than salary costs. If so they will need to be paid to the employee subject to the deduction of national insurance and income tax, and the business will need to pay employers’ NI and pension contributions – so the amount actually paid to the employee may be less than the headlines are touting, something which the employee may not be expecting,” she said.
She also recommends that businesses plan for what happens when the support ends.
Smith added: “Will your business immediately bounce back to requiring its full staff, or is it more likely that the increase will be gradual? Is there a chance you may rethink the business and staffing structure during the period that things are on hold? If so, you may still need to make redundancies, or you may need to continue to keep staff on furlough, at which point the government support may have stopped. It is currently only available for wage costs between 1 March and 31 May 2020.”