For office occupiers looking for financial relief during the coronavirus crisis our advice is to check the terms of your lease and any insurance policies held.
All of the legal opinion we have studied is consistent in advising that (subject to certain exceptions) a tenant is not entitled to: a) terminate its lease because it chooses to close its business or can no longer afford to pay rent (unless it is entitled to do so under the terms of an existing break option), b) to withhold rent or pay a reduced amount due to cashflow problems, c) cease paying service charges due under its lease, and, d) cease paying business rates, since any relief or concession will be a matter between the tenant and the relevant local authority.
The package of temporary measures set out by Chancellor Rishi Sunak to support businesses (see: www.gov.uk) through this period of disruption includes:
• a Coronavirus Job Retention Scheme
• deferring VAT and Self-Assessment payments
• a Self-employment Income Support Scheme
• a Statutory Sick Pay relief package for small and medium sized businesses (SMEs)
• a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
• small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
• grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
• the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
• a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
• the HMRC Time To Pay Scheme
While the above measures are unlikely to offer much in the way of succor, our advice is and remains that occupiers should actively engage with their landlords at the earliest opportunity to discuss the options which may be available. Potentially, a number of other solutions could afford some relief and we stand by, ready to engage with your landlord should you need our help and advice in navigating these unchartered waters.
Business Owners’ Survival Plan
How will this crisis affect your business and what are you doing about it? The latest thinking from Silicon Valley (courtesy of Sequoia Capital) suggests that business owners and investors should take the following steps to ensure survival:
1. Cut expenses & preserve cash. How much cash do you have? What’s your runway?
2. The money is going to dry up. Don’t count on raising money.
3. Prepare to survive tough sales. Deals that seemed certain may vanish. Maybe they’re just on hold for a while, but the cash doesn’t spend either way.
4. Cut advertising and marketing expenses. This one surprised me, but they suggest that lifetime customer values may have changed and that businesses may need to adjust spending on marketing.
5. Be prudent with capital spending. This makes sense to me at any time, but the threshold for what makes sense now is probably much lower.
There’s no doubt that some industries will flourish during the current crisis owing to the services they provide – take a look at Zoom’s stock price; it will be interesting to see which other businesses will break out due to creative marketing. Thoughts and feedback welcome.
The New Normal
After Covid-19 has abated and life returns to normal, the big question for many businesses will be “what does normal look like?” For many corporates there is likely to be a realization that they may be renting more office space than they actually need.
GoSpace AI Chief Partnership Officer Neil Usher remarked that every company that has conducted a space utilisation study has consistently found that between 25-50% of desks are unused throughout a day.
Factor in also the impact of the Minimum Energy Efficiency Standard (MEES) Regulations on older inefficient office properties, and pretty soon we arrive at a scenario where occupiers are exiting sub-standard office stock and concentrating core business activities in the best and most efficient real estate. Perhaps the next big question to be asked is ‘where should those core activities be located?’ Do please e-mail us your views, as we are keen to hear your thoughts on how your business might adapt its own business practices in the new normal!