The Bank of England published the latest edition of its Financial Stability Report today.
Apart from making very sober reading generally, it touched on a problem that may be facing commercial landlords.
Commercial property prices have fallen by 24% since their peak and rental growth has also ground to a halt. In addition, the downturn in the economy increases the liklihood of commercial tenants defaulting on their rental payments.
These facts are of real concern to commercial landlords as they will all contribute to difficulties in refinancing loans secured against their property portfolio. Banks may demand a further injection of capital from landlords to keep loan to value ratios at acceptable levels and banks may be less willing to lend money against anticipated rental levels, preferring to rely merely on the value of the underlying asset with vacant possession.
Landlords should be considering proactively obtaining fresh valuations of their property holdings to assess and plan for any funding difficulties over the next twelve months.
Carrying out a review of the terms of existing leases would also be a prudent step to ensure the bank can be provided with evidence of the quality of the portfolio. Cousins Business Law are offering a free lease review to all landlords.
Steven Petty, Commercial Property Lawyer