As the global Covid-19 pandemic continues, certain formerly niche words are working their way into the mainstream. Two months ago no-one knew what ‘furlough’ meant, while ‘isolation’ was something endured by high-security prisoners or Alaskan hunters. Another term you might be hearing a lot at the moment is ‘rent holiday’. But what does it actually mean, and as a tenant should you be asking your landlord for one?
What is a rent holiday?
A rent holiday is when a landlord and tenant agree that the tenant won’t pay rent for a set period, on the understanding that it is paid back later. The most important thing to remember about a rent holiday is that the rent is still payable – it’s really just a very basic form of credit, allowing you some valuable breathing space if you get into short-term financial difficulty.
Rent holidays work best when both parties are absolutely clear about exactly what is being agreed – especially when it comes to the repayment plan. It’s also better if the rent holiday can be arranged before you get into arrears.
From a landlord’s point of view, rent holidays may not always be possible, or may take some time to sort out. A common difficulty is that some or all of the rent might be going on mortgage payments for the property, so for your landlord to give you a rent holiday they may first have to try and get a mortgage holiday from their lender.
What happens once a rent holiday is over?
A key part of committing to a rent holiday is agreeing how you’re going to pay the money back once your rent payments start up again. In most cases you’re unlikely to be expecting a sudden windfall that will allow you to pay it back all in one go, so you and your landlord will need to come up with a repayment plan. Normally this will involve paying a supplement on top of your normal rent each month until the debt is paid off.
Landlords should not be charging interest or other fees on rent that has been deferred during a rent holiday. Allowing you some leeway to pay something at a later date without penalty is one thing, but plans that involve charging you to do this are something very different, and are almost certainly subject to complex regulation by the Financial Conduct Authority (FCA). If your landlord is proposing a scheme of this sort then it is not a standard rent holiday and you should seek expert advice before entering into anything.
What are the potential knock-on effects of a rent holiday?
The obvious consequence of a rent holiday is that your rent payments will increase temporarily when it’s over. How long for, and how much by, will depend on what you’ve agreed with your landlord (and the length of the rent holiday), but it could be quite a while until you’re square.
This means that a rent holiday is very much a temporary solution to see you through a short period of hardship before your income returns to at least its former level. If that is unlikely to happen then it would probably be better to look into an alternative solution, as suggested below.
Why are rent holidays particularly relevant at the moment?
During the current coronavirus lockdown, a lot of people will be seeing their finances knocked about. Huge numbers of businesses have been forced to close temporarily, and many people are unable to work for the time being. While ambitious government schemes should see the majority of people get grants that will pay up to 80% of their salaries, the measures won’t cover everyone, and even for those who do benefit, there could be delays in getting the money. Self-employed people, for example, are likely to get their payment as a lump sum in June, meaning they could potentially have gone three months without any income.
This is exactly the kind of temporary situation where a rent holiday could be extremely useful, and the government has removed a major obstacle by asking mortgage providers to offer mortgage holidays of up to three months on buy-to-let mortgages. This means that landlords who wouldn’t previously have been able to offer rent holidays due to their own financial commitments will now be much more likely to agree to one. Unlike a rent holiday, there’s usually a slight cost associated with a mortgage holiday, but this shouldn’t be passed on to you as tenant.
If you’re having difficulty paying your rent just now, it’s quite possible that your landlord will be able to arrange a rent holiday, but it may take them some time. With this in mind, it’s best to contact them sooner rather than later if needs be.
What other alternatives might there be?
You might still be able to pay most of your rent, and if that’s the case then just explain that to your landlord and arrange to defer a portion of it. The less onerous you can make those future repayments, the better.
At the other end of the scale, a rent holiday still won’t be enough to get some people out of the hole. If this is the case for you, then you may have to try and negotiate a straight-up rent reduction, or even a temporary rent suspension – without paying back the shortfall in the future. Your landlord won’t like it, and they may refuse, but equally there may be good reasons for them to try and keep you in the property.
Firstly, empty properties are expensive. It takes time to get new tenants in, and no-one knows for sure how the rental market will behave in the coming months. So there is a significant risk of void time, plus if the place is rented through an agency then most of the first two months’ rent will probably disappear on up-front letting fees and other associated expenses. Viewed from that angle, a sitting tenant is therefore quite a valuable thing, and that’s especially true if the landlord-tenant relationship is a good one. If you’ve always previously paid on time and have taken good care of the place, then it makes financial as well as moral sense for a landlord to find a way to keep you there. Yes, there may be a cost involved, but there is also a significant cost for the landlord if you decide to give your notice and move to another property.
If the benefits of a good sitting tenant represent the carrot for your landlord, there is also a stick in that they can’t actually evict you at the moment. Under temporary new rules, landlords now have to provide a whopping three months’ notice before they can proceed with repossession action, and the courts have suspended all such action for the time being anyway. So if you decide to stop paying rent permanently then it could potentially be several months before they can do anything about it, and they will then have to waste a great deal of time pursuing you through the courts. Of course this is not something to be threatening your landlord with, but it’s bound to be in their mind during any negotiations.
Everyone is having to be flexible in these difficult times, and many landlords are fundamentally decent people who recognise that no tenant could have predicted this would happen. Most should be open to arranging rent holidays or giving you some flexibility over payment deadlines, and if you’re genuinely in serious financial difficulty then you may be able to negotiate a way out. As always, the key is honest communication and a cool head.