COVID19: The pitfalls in agreeing on rent reductions

2 mins read

We are considering what stance to adopt on the proposal submitted by the Traders Association regarding possible rental reductions due to the virus situation.

This is not an easy job and it needs extensive discussions and thought is required as to who will benefit and what will be the basic general percentage deduction for businesses and individuals.

Civil Servants, semi-Governmental bodies, bank employees, those with the minimum Governmental income and others including pensioners, should not benefit from any reduction since their income has not been reduced by a cent.

Business owners who can show that their turnover is reduced by more than 25% will get support from the state.

So, we do not think that it is reasonable to get in addition a rental reduction.

There are businesses that have increased their operation, such as take-away, delivery business, supermarkets and delivery firms should be excluded.

There are businesses which in any case are either closed or do not operate during the winter/low season, especially those in the tourist areas.

So, when we refer to the 25% income reduction, it should relate for the whole year and not for a special season.

Then who will vouch for this 25% reduction?

Being the people we are in Cyprus and with a small percentage of businesses having updated detailed audited accounts, certified by auditors must check.

As a general rule, we say that businesses assisted by the Government should be looked upon with limited sympathy.

Regarding rents and their possible reduction (see Greece with a flat 40% reduction on rentals – shocking), we should differentiate between business/individuals who pay market/near market rents and those who are paying a lower rate.

If we are to take the statutory tenants and for those properties which are let to refugees at well-subsidized rentals, why should they benefit?

The never-ending non-paying tenants will grasp the opportunity to excuse themselves for not paying the rent, notwithstanding the recent freeze on eviction of 3 months.

Business/individuals who own their own property and notwithstanding the non-payment of rent that the business has used its own cash and/or have borrowed to buy their property, are at a disadvantage, as opposed to tenants.

These and other circumstances are not easily formulated and implemented.

Who should benefit?

So, shall we take into account from now on the “personal” circumstances of each tenant and landlord and what will these thousands of landlords do, who need their rent to survive or pay back loans?  How can we assess the “personal” circumstances?

If anyone gets the benefit of rental reduction, it should mean that when the crisis is over, the rents return to their original level and if business improves, will not the landlords ask for a higher rent?.

So that we can start “talking” on the subject, our initial stand is as follows:

Civil Servants and bank employees those on a fixed salary income from the Government such as pensioners, should not benefit from a reduction.

Tourist business including hotels not to benefit, unless the reduction of 25% turnover is proven and this for the whole year  – bearing in mind that the winter season they are not operating anyway.

For residential units the tenants which have not been affected, zero discounts.

Commercial units/offices to have a maximum reduction of 20% for a 3-month period (unless they get a Governmental subsidy – no firing of staff) and this if they are paying market rents.

For those whose income is reduced, residential units to get a discount of 20% for 3 months only.

At the end of the day the best solution, of course, is the possible agreement between landlords and tenants, but bearing in mind human nature, the two sides will try to gain/save as much as possible.

A tenant in a 2 bedroom flat in Limassol is paying rent of €350 p.m. (current market rental of €700 p.m.) but claiming a 50% reduction because he has been affected both financially and psychologically!!

The landlord is retired and uses his rent partly to cover his children’s studies abroad.

So, the tenant has stopped paying any rent in order to place pressure on the landlord to accept the 50% reduction – is this not exploitation?