The effects of the COVID 19 crisis on the property industry and wider economy have been sudden and unprecedented. Even now as we enter the 6th week of lockdown the horizon is filled with uncertainty, and there is trepidation as to how events will unfold both in the short and longer term. There isn’t a Property Manager in the world that will have experience of working in such circumstances and therefore, to some extent, we’re all in the same boat as we try to navigate these uncertain waters. No one could have seen this coming, or planned for such events, and therefore strategies quickly need to be put in place to provide effective property management solutions that are aligned to a fast-moving situation.
Currently there are thousands of empty buildings across the country as more and more people have been working from home following the Governments advice. As workers return to their work place in the coming weeks or months they may be met with increasingly volatile working conditions, where both companies and individuals are facing cash flow and financial difficulties. It’s therefore inevitable that this will have a knock on effect for the property industry.
Traditionally property management has been focused on maintaining high quality, fit for purpose assets, driving rental income and lease terms to enhance investments values, while delivering service for landlords, residents and tenant’s requirements. Whilst these fundamentals have not changed a different approach may now be needed to plot our way through these unusual times.
Chris Witty, the Chief Medical Officer to the Government, has recently gone on record as saying that social distancing will need to be in place for some time beyond the lockdown, possibly until the end of the year or longer. Therefore, Property Managers will be facing a number of new challenges and will need to adopt a different approach in the following keys areas;
Rent Collection – The risk of rent arrears in the near future is distinctly higher and likely to remain so for the foreseeable future. The Government is encouraging Property Managers to communicate with tenants and be flexible where possible, to discuss when and how tenants can repay arrears once the situation improves. Whilst some flexibility is recommended it doesn’t change the fact that landlords still have mortgages and other financial commitments that need to be met in the short term. Therefore, it’s essential that Property Managers have stringent rent collection protocols in place and are reviewing arrears regularly. It’s important to strike the right balance between providing some flexibility to tenants and protecting the landlords interests.
Property Managers will need to be alive to the possibility that some tenants may try to take advantage of the situation and not pay rent when they have the cash resources to do so. Where tenants have requested to defer rent payments Property Managers should be requesting that they provide further financial information as evidence that they aren’t able to pay rent. They should also be enquiring as to whether non-paying tenants have made use of any of the Government grant or loan schemes.
Property Managers may need to consider other ways to manage rent collection in the short term as the Government looks to temporarily restrict landlords rights in relation forfeitures, and the use of other collection tactics such as CRAR and the serving of winding up notices. Negotiation and exercising rights in relation to rent deposits and guarantors may be the only options currently available.
Lease Terms & Security – Both landlords and tenants may look to negotiate lease terms differently going forward. For landlords the covenant strength of a tenant will come under more scrutiny than before, particularly if they have question marks over their ability to pay rent in the event of another lockdown scenario. Therefore more stringent checks, larger rent deposits and/or guarantees may need to be requested from tenants.
For tenants, it may be a case that they’ll want to take more flexible lease terms and insist clauses are inserted that would release them from rent obligations in the event of another COVID 19 lockdown situation. Tenants may also look to negotiate out forfeiture clauses to ensure security of tenure during periods where it may be unrealistic for them to use their premises.
Lease Breaks & Expiries – Property Managers need to be aware of their client’s weighted average unexpired lease terms (WAULT) and any clusters of break clauses and expiries that could impact on cash flow in the anticipation that more tenants may be exercising their rights in this regard.
Consideration should be given to tenants evolving space requirements, and understanding their plans and intentions at an early stage may allow negotiations to relocate them to other more suitable units, or to start the process of finding new tenants to minimise potential voids.
Maintenance of Buildings – The maintenance and particularly cleaning of buildings is likely to become a very important area beyond lock down and will need attention to detail when tenants start returning to work. Given that social distancing measures are likely to be in place for some time plans need to be afoot which will combat the spread of the virus and adhere to Government guidance.
Additional specialist cleaning will be required with more attention being paid to areas which come into frequent contact with tenants, for example door handles, lift buttons, access codes, communal furniture, concierge desks, entry barriers etc.
Hand sanitizers and washing facilities will need to be made readily available and clearly signposted. Contractors coming to the building will need to adhere to strict protocols and delivery drivers should be asked to wash hands before loading and unloading goods. Consideration may also need to be given to access (i.e. changing from push button codes to door fobs) and introducing one-way systems for pedestrian traffic through buildings.
Vacant or Unoccupied Space – We’ve seen in recent weeks with the shutdown of the property lettings and sales market that agents have been taking videos of vacant properties. Going forward and if there is a continued need for social distancing then virtual viewings could become the norm as opposed to just a shorter term fix.
Where there is unused space in a building, that either remains vacant, or unoccupied by a tenant that may be working from home, then property managers should be liaising with landlords and tenants to help keep running costs down. If there is a vacant floor in the building which is being marketed virtually as opposed to physical tours then consideration should be given to turning off all power / air-conditioning systems to eliminate any potential costs.
Communication with Stakeholders – As the situation evolves, it will be important to maintain good communication with all stakeholders including landlord and tenants, property managers and maintenance teams. Effective communication can help to ease stress and worry on both sides and promote a strong working relationship going forward.
As circumstances have escalated, a variety of services have been affected, including the availability of contractors, which may continue to impact on many aspects of property management. Therefore it is more important than ever to build strong relationships with contractors and suppliers.
Buildings Insurance – Property Managers should be checking buildings insurance policies to ensure compliance with reduced occupancy. Where properties may remain unoccupied for a period, or partially occupied, then there may be requirements to report this to the insurance provider and ensure risk assessments have been carried out.
Banks Loans – Property Managers need to ensure they are complying with financing agreements and correctly report rent arrears, tenancy breaks, expiries, tenant administrations, or potential loss of rent to their lenders. If they suspect a tenant may be experiencing financial difficulties then any early warning signs should be reported.
Health & Safety Requirements – Whilst there is currently no formal legislation that Property Managers need to adhere to when dealing with health and safety issues relating to COVID 19 it’s quite likely that this will be introduced in the coming months and as a minimum requirement Property Managers will need to implement much stricter hygiene regimes. Early precautions should be taken and communicated to tenants and contractors which could include the following measures:
- Advise contractors coming to site that they will need to adhere to strict hygiene requirements.
- Request that delivery drivers remain in their vehicles if the load allows it and wash hands before loading and offloading.
- Encourage tenants to travel to and from work alone and use personal transport wherever possible such as bike or car.
- Request that anyone who falls ill should return home immediately and notify the Property Manager. If they are living with someone who is self-isolating they should not come to work.
- Request that anyone who sneezes or coughs use a tissue or if they don’t have one to use the crook of their elbow.
- Ensure hand cleaning facilities are readily available and sign posted around the building.
- Request that everyone washes their hands both on entering and leaving the building.
- Ensure there are adequate supplies of hand sanitizer and soap at all times.
- Restrict the use of touch mechanisms where possible.
- Encourage tenants to stagger their break times to reduce congestion in common areas of the building.
- Encourage workers to bring their own food and refillable drinking bottles to work.
- Request that all workers put their own rubbish in the bin and not leave it for someone else to do.
- Request 2 metres is kept between workers and skin to skin contact is avoided.
- Request that any equipment is not shared where possible.
- Encourage workers to use the stairs used instead of lifts and not to congregate in communal areas.
- Recommend that tenants hold meetings in open or ventilated spaces.
To summarise the world of property management is changing before us, and it’s going to require a proactive approach from Property Managers to service their landlords and tenants needs. The lockdown may come to an end shortly but its effects will be long lasting and with us for the foreseeable future. The key to success will be adapting quickly to the changing environment and embracing a new way of life, at least until the threat from COVID 19 has been fully eradicate