The Chancellor, Rishi Sunak has extended the Government furlough scheme that will now run until the end of October. There has been adverse press commentary about the economic impact of the Coronavirus outbreak. The redundancies and financial insecurity it has brought to many cannot be fully eradicated.
Our research shows that around 45 % of UK Landlords have reported problems with tenants defaulting on rent. Some Landlords have offered discounted rents and others with built-in repayment plans. In this months Lettings Update, we explore the key questions surrounding the issue and what action steps you can take to navigate your tenancy thorough this challenging period.
Do I need to offer a rent-free period to my tenant?
Most tenants are still able to pay their rent in full despite being furloughed, receiving up to 80 % of their wages. The remaining 20 % of workers’ pay is entirely at the discretion of the employer.The scheme will operate on this basis until the end of July. In a bid to get the wheels of the economy moving again, The Chancellor has announced an easing of the lock-down measures enabling employers to get their staff back in to work, albeit on a part time basis. The Government contribution will be staggered from August to October with employers expected to contribute.
The employer payments will substitute some Government contribution, ensuring that staff continue to receive 80 per cent of their salary, up to £2,500 a month.
For freelancers and those who are self-employed, the Government is still offering 80 per cent of their net monthly earnings averaged over the last three years, or £2,917, whichever is lower.
Despite this, there are many reasons that some tenants may still struggle to keep up with rent payments. For some, the 20% drop in income has had a greater impact on their finances. Businesses have been evaluating their cost base and have made the decision to cull staff numbers rather than keeping staff furloughed.
On announcement of the furlough scheme, there was outcry from the self -employed and freelancers who are part of the “gig economy” about how they had been left behind. In response, The Chancellor, introduced Self-Employment Income Support Scheme (SEISS) by similarly offering workers a government-paid wage worth 80 per cent of their average monthly earnings. The scheme opened in mid -May, some 6 weeks after lock-down was announced, leaving many self-employed people in financial difficulty. Ironically, not all freelancers or those who are self-employed are eligible for support.
Those who are not eligible will be worried about their financial future. Crucially, lines of communication must be open between you and your tenant. This will encourage both sides to act with transparency and integrity to work out a plan for the short and mid-term.
Remind them that there is Government support and a ban on evictions under the Coronavirus Act 2020. This will hopefully encourage tenants to come forward and tell you about any change in their circumstances or become unwell.
What if my tenant cant pay the rent?
Since the start of the lock-down in March, the Government have announced measures to protect tenants and help Landlords by way of mortgage holidays if tenants are unable to pay due to Covid-19.
Possession claims, both new and old have been suspended since 27th March for 3 months. The Government may extend this period, should the need arise.
The mortgage holiday is on offer to Landlords for up to 3 months. You should only apply for this if you can prove that your tenants are unable to pay the rent due to Covid-19 and that you are otherwise up to date with your repayments. You will need to speak directly with your mortgage provider about this.
These schemes offer a deferment to tenants. they are still liable for all rent and other charges under the tenancy for as long as they are in occupation.
Whilst communication is encouraged, keep a closer eye on your rent account to ensure payments are coming in when due. Keep things warm and friendly with your tenants if they are having any difficulties and come to an arrangement. You may offer them a 20 or 30 % reduction for a specific time with an agreement in place to pay the shortfall over a period.
Keep all communications in writing and whilst terms should be reasonable, it needs to be made clear what has been agreed, how long for and how the shortfall will be paid back over the term of the tenancy. Like any written agreement, it should be signed, and dated by all parties, and independently witnessed.
These are challenging times for Landlords and Tenants that has brought about a need for collaboration to get through a public health crisis. If you need further advice and would like a chat you can call the office on 020 8366 9777 or email me [email protected]