Author: Josh Powell
Rent freezes designed to ease pressure on tenants during the Coronavirus crisis may help in the short-term, but could they cause more serious problems further down the line? Let’s find out more.
As I write this, the UK is slowly coming out of the Coronavirus lockdown. We are allowed out of the house more often and schools are beginning to reopen. Shops are pencilled in to open in the middle of June. However, the furlough scheme is still running and many people are wondering when we will be able to return to work as usual, if at all.
Understandably, many people are worried about how they are going to pay their rents, whether they are in residential or commercial property. On the other hand, landlords still need to collect payments, but risk being stuck with empty properties if they evict non-paying tenants.
At the start of the COVID-19 crisis, the Government laid down legislation to ease the pressure on renters, making it harder for landlords to evict and encouraging landlords and tenants to agree to rent freezes, where tenants would not have to pay now. Instead, they would pay their outstanding rent on a restructured schedule, when life is more like it used to be.
This sounds great in the short-term, but could rent freezes actually be disadvantageous in the longer-term? It’s clear that there are situations where accepting a rent freeze now could lead to future issues for both sides. Let’s find out more.
Financial risk for tenants
The problem with rent freezes is that eventually, things heat up again. One day, you’re going to have to pay back the rent you have missed, as well as the forthcoming amount. Your monthly outgoings will suddenly become significantly more substantial.
You may have negotiated your rent freeze because you are on furlough or have been made redundant. You don’t know when you will be back earning again. When you receive a higher than average rent bill, you may have made your problem worse. Your landlord may not be able to grant you another extension.
Credit risk for tenants
If, as predicted, there is an economic downturn after the lockdown period, landlords may be more selective about who they rent to in the future. They will not want to rent their properties to people who may not be able to pay.
This will make the process of compiling references for tenants even more essential. If you froze your rent during the Coronavirus crisis, you could be seen as a risk. It could be harder for you to rent a home in the future.
For the reasons above, accepting a rent freeze should only be done as a last resort. Exhaust all your other options before you take this risk. However, it’s not just tenants who could find themselves disadvantaged by rent freezes. It could affect landlords too.
Risk to landlords
Landlords could find themselves hamstrung, having tried to do the right thing for their tenants. If you’ve agreed to a rent freeze with your tenant, but they struggle to pay back the money they owe, you have a decision to make. You can go through the long and stressful process of eviction, but then you may struggle to rent your property out again, due to the economic downturn.
You still have outgoings to fulfil, shareholders and investors to please. It could be challenging.
If you rent residential properties on a short-term basis, to students, for example, you have to try and get them to pay back your rent before they leave.
Landlords and tenants, whether in commercial or residential properties, must try to communicate effectively to minimise pain on both sides.
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