Retailers selling non-essential items have been ordered to close with immediate effect as the UK goes into lockdown to prevent further spread of Covid-19. Bars, restaurants, theatres and other entertainment businesses in the hospitality sector had already closed in line with the rules around social distancing. The progression to lockdown mode means that further non-essential traders have no choice but to follow suit. The government has announced emergency measures to protect business tenants from eviction where they cannot meet their rent over the next three months, as discussed in our article yesterday
Whilst this welcome measure will provide some comfort to business tenants until the end of June 2020, what impact will this have on landlords with property loan repayments to meet?
Whilst we don’t have the answer to that question yet, and in the absence of any follow up guidance on that point, our advice for the moment is as follows. It is advisable that borrowers carefully check the terms of any existing loan agreements in place and consider approaching lenders to obtain written agreement that the lender will not take enforcement action where the borrower is unable to meet repayments during the pandemic due to, for example, non-payment of rent by a tenant.
It is also important to check the terms of existing loan agreements before taking any other actions to protect your business in case of an unintended breach.
Most loan agreements restrict borrowers from taking out any other form of loan without consent as this may impact on the borrower’s ability to meet their repayment obligations. This should be considered before applying for any loans offered under the Chancellor’s package.
Rescheduling loan repayments by taking advantage of HMRC’s Time to Pay service or halting all or part of your business may also constitute a default under the terms of your loan agreement.
If you require assistance in understanding the terms of your loan agreement or negotiating with your lender, please contact us.