How COVID-19 regulations are changing landlord-tenant dynamics

Hastily enacted regulations addressing a fast-unfolding pandemic have introduced a layer of complexity around leases between tenants and landlords.

Governments worldwide have implemented a range of emergency legal and fiscal policies to help cushion the economic damage caused by COVID-19 travel restrictions and stay-home measures.

Each jurisdiction has established its own rules, resulting in myriad policies around returning to work, rent relief and codes of conduct for payment forbearance, and for helping tenants or property owners get access to government grants and loans.

“Many of these relate in some way to either direct fiscal support or regulatory suspension of the standard legal requirements around the tenant-landlord relationship,” says Jeremy Kelly, a director in JLL Global Research.

In Singapore, for instance, the government has granted tax rebates and cash grants to landlords whose SME tenants have seen their gross income between April and June fall more than 35 percent.

In the UK, businesses in the retail, hospitality and leisure sectors are able to obtain a cash grant of up to £25,000 ($32,000) per property.

In Australia, landlords get a 25 per cent reduction in land tax liability for 2019-2020, provided this is passed on to tenants. A

cross the developed world, moratoriums on the forfeiture of commercial leases by landlords for non-payment of rent are also common.

Many of these measures are tenant-friendly. Given the current soft market conditions, tenants are arguably in a stronger negotiating position in many markets, says Kelly.

This has led to some concerns about the position of landlords. One of the issues raised by the various measures introduced to support companies through the crisis is that they have frequently involved direct financial support to tenants, or a prohibition on landlord enforcement mechanisms for collecting rent.

Risk of unintended impacts

While some countries, such as Australia, the Netherlands and Singapore, have implemented plans to help landlords, in other regions the measures have not involved commensurate support for landlords, says Kelly. “A key distinction between countries thus far has been their acknowledgement, or not, that property is embedded in a larger economic and social system.”

In advanced economies, property developers and owners are not only a significant source of government tax revenue, but they are also investors in local infrastructure and services and providers of pension benefits and jobs. Unintended financial impacts on property owners, therefore, risk much more wide-ranging effects on local communities, companies and the broader economy, says Kelly.

Nevertheless, governments’ legislative efforts in mitigating COVID-led impacts have introduced uncertainty into lease relationships. Some landlords have opted to provide rental holidays for a fixed period. Others are looking to build in repayment schedules over the remainder of a lease, while some have forgiven lease obligations entirely, particularly for smaller tenants.

“These legal changes have necessitated negotiations on how rent obligations accrued during moratorium periods will be repaid,” says Kelly.

The negotiations are dependent on the circumstances of each landlord and tenant, with landlords attempting to strike a balance between maintaining earnings and supporting tenants through the crisis period to sustain occupancy levels and income over the longer term, he said.

Real estate as part of the broader economy

As many countries struggle to contain COVID-19, the scale and scope of the changes to leases are still unfolding. This…