Manjit covers a broad range of commercial property work; but specialises and leads the firms Secured…View Profile View all
Let’s be clear. These are worrying and uncertain times for lenders and borrowers. I have first-hand seen the impact on business and not only requests made from high street retailers, but also businesses big and small across all sectors for rent holidays.
From a borrowers perspective, such requests are unlikely to qualify for a default on an otherwise performing loan. Why? Firstly, we need to look at financial covenants.
These are the conditions of a loan agreement. They are the promises by the management of the borrowing firm to adhere to certain limits in the firm's operations.
Key things you need to ask yourself include:
Covid-19 does not automatically equal a rental break.
Covid-19 will not trigger or constitute an event of default, but significant deterioration in trading performance effecting a business’ ability to meet obligations under its loan arrangements may do so.
Forward looking covenants need to be considered when;
Naturally this has an effect to service the loan from the lender.
Lenders consent will also be required from borrowers when considering tenants request to reduce rent, as many loan agreements restrict this without lenders permission.
How will valuations work?
The impact to asset value is less certain.
It seems inevitable to me that there will be an impact on assets as market conditions deteriorate. I have come across some valuations in recent weeks with caveats due to the impact of Covid-19 which are having an effect on market values.
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