Covid-19 clauses let tenants defer super-prime deals
Tenants in high-value London markets are agreeing deals that allow them to delay the start of lettings contracts
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Clauses are being written into super-prime lettings agreements that enable tenants to secure a property but only start paying rent once government restrictions are lifted.
The imposition of social distancing and self-isolation rules means activity in the London property market has significantly reduced but it has done nothing to dent underlying demand.
“Nobody has permanently walked away from the London market,” said Tom Smith, Knight Frank's head of super-prime lettings. “These new clauses show that they have instead pressed the pause button. They enable people to secure a property and to some extent protect themselves from the uncertainty of what is going on.”
Clauses relate to the lifting or tapering of restrictions, the re-opening of schools or a set date in the future.
Such clauses are also appearing in tenancy agreements in higher-value price brackets below £5,000 per week, said David Mumby, head of central London lettings at Knight Frank. “What that demonstrates to me is that peoples’ current mindset is a temporary one and they know life will go on,” he said.
Before the Covid-19 pandemic, activity in the super-prime lettings market in London had been on a shallow decline as signs of strength returned to the sales market, as the chart below shows.
“Things had actually started to slow after the election,” said Tom. “The flow of new supply began to become more constrained and most of our conversations with landlords also kept the sale option, which is something that wasn’t happening 12 months ago.”
The so-called “Boris bounce” following the general election in December certainly brought a large number of new buyers and sellers to the market, though it should be remembered that the market was already in recovery mode after years of re-pricing, which was related to tax changes and Brexit uncertainty.
In relation to deals that had been underway or cases where tenancy agreements have come to an end, Tom says most super-prime landlords and tenants were demonstrating pragmatism.
“Even in this price bracket landlords recognise that some short-term flexibility around rents can be a good idea when they still need to pay the mortgage and the tenant is unsure by how much their income will be curtailed.”
Demand for prime rental properties has also come from some of London’s hotels, where long-term residents have had to find alternative accommodation as hotels shut their doors. “Some hotels have made contact with us because they feel a duty of care to long-term residents,” said Tom.
Meanwhile, landlords and tenants are embracing new technology as a short-term solution in London’s high-value markets. “We agreed a tenancy for a flat in Knightsbridge on the basis of a FaceTime call,” said Tom.
He believes that the downwards trajectory of activity may reverse as the market emerges from the other side of the Coronavirus pandemic.
“Lettings enables people to be agile and after an event like this, having that option could be quite attractive. Either way, once restrictions are lifted we’ll see a spike in activity.”