Rental income and property management challenges during the Covid-19 crisis: strong relationships are the key

The Association of Real Estate Funds' (AREF’s) second crisis forum webinar focusing on rent issues and operations on 21 April 2020 provided a useful update on the challenges facing property managers at present. The key themes of the discussion were:

1. Rent collection – Andrew Waller of the Remit Consulting confirmed from their survey of rent collection figures that Q2 remained low (plus seven days after March quarter date) with 57% of rents collected, in comparison to the 2019 figure being 90%. The industry is now looking to see the rent collection numbers for the end of April (as many tenants have switched to monthly payments) as an early indication of the likely rental income to be expected for the June quarter date.

Both Nick Bark of CBRE (Property Management) and Mark Tyson of LGIM Capital Management confirmed that property managers are working with occupiers and landlords to agree ways forward for maintaining rent and service charge payments (even if payments are not in full). The panel agreed that the trend in recent times to develop stronger relationships on the ground between the property management team on site and the occupiers is now paying dividends. This emphasis on strong relationships links to a new focus on ESG (environmental, social and governance) matters by the real estate industry with the Covid-19 crisis now switching the focus from environmental matters (prevalent at the start of 2020) to social responses to the crisis. (See here a recent post on social responses in loan markets.)

2. Service charge dynamics – A possible area of tension for landlords and tenants in the future will be the apportionment of service charge for this quarter. Mixed use developments may be particularly prone to difficult discussions with occupiers where some have continued to trade, while retailers, or those in the leisure industry, have closed.

There is a balance to be struck between scaling back some services on a site, but ensuring that: (i) insurance obligations and lease obligations are complied with; and (ii) essential maintenance continues, so that sites are fit for purpose when occupiers start trading again. Additionally, property managers are part of a multi-million pound supply chain of service providers, which employs thousands of people, and they have to also retain those relationships, not just manage their tenant relationships.

Open discussions and clear communications with tenants about the property management operations on site are key to ensuring they understand why services are to continue. These communications will assist with: (i) justifying service charge expenditure at the end of the service charge year; and (ii) helping to demonstrate that the landlord has acted in a reasonable manner.

3. What’s next? – The panel confirmed property managers were already drawing up plans for coming out of the current lockdown measures. The industry is hoping for further government guidance on the intended exit strategy from lockdown and specifically any health and safety measures that should be implemented, such as:

• temperature taking on entry to buildings;
• cleaning measures;
• implementing certain measures to enforce social distancing, such as one-way systems in buildings (potentially not possible in all building layouts); and
• requirements on distances to be kept between persons within working spaces.

The overriding theme running through the webinar was working collaboratively there is a greater chance of landlords and tenants successfully overcoming the challenges they face during the Covid-19 crisis.