The Covid-19 pandemic has had a major effect on the revenue stream of tenants, which has impacted their ability to meet their rental payments. Some landlords have responded to the situation by agreeing amendments to rent payment obligations to ease cash flow pressures on their tenants. In many cases, however, landlords themselves are now at risk of failing to meet their interest payments under their loan arrangements. The London Property Alliance (“LPA”), which represents 400 members with interests in Central London property, has, therefore, called on the Chancellor to encourage lenders to show flexibility towards landlord borrowers during disruption caused by the Covid-19 crisis.
There will be increased focus on income covenants in loan arrangements and a need for timely and clear reporting from borrowers in response to the challenges caused by the Covid-19 crisis. It is, however, good to see that many lenders have, so far, responded well to the crisis by seeking to engage with their borrowers in order to meet some of those challenges proactively. Lenders and borrowers will have to continue to work collaboratively as the situation progresses and lenders will need to consider what additional flexibility they may be able to offer their borrowers on a case by case basis.
The LPA said that while landlords are helping tenants through rent deferrals and holidays, they are “risking their own assets, credit ratings and survival prospects” in doing so because the finance industry is not providing the same flexibility to them.