The firm said that there should be vocal support from the government for landlords negotiating covenant breaches with their lenders.
Adam Chamberlain, partner at Boodle Hatfield, explained that the government’s decision to stop landlords evicting tenants had the unintended consequence of putting many landlords in violation of their loans — a problem he thought needed to be addressed.
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He added that the non-payment of rent by tenants may breach loan covenants that cover areas, such as:
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Void periods on rents
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Rent arrears
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Projections of rental income over the next 12 months that need to be a minimum percentage of the interest payments on the loans
“There is a wide group of property lenders, including completely unregulated lenders, who may feel less pressure to be ‘fair’ to landlords in the current crisis than the big high street banks.”
Adam recommended that landlords which feared they were going to breach covenants should approach their lender early and negotiate a solution.
“Lenders don’t want to seize properties from borrowers, but they can still impose a lot of financial penalties that fall short of that — if you are a borrower, you don’t want that to happen.”
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