He is not alone. As with all property investors across Europe, his firm has to contend with multiple fronts opening up at the same time. There is the possibility of going on the offensive; with ample dry powder at the firm’s disposal, the investment team is hunting for opportunities. But there is also the existing portfolio to be assessed for damage.

Patron owns Punch Pubs, employing over 450 people in 1,300 leased pubs that have had to shut under UK government social distancing orders. Like many European firms, it has assets in more than one jurisdiction. This makes things extra complicated as there is no uniform approach to helping tenants or workers in each European country. Instead, there is a hotchpotch of different emergency laws (see map on pages 10- 11), some of which are friendlier to tenants than others.

Says Breslauer: ‘Right now, we have local operating partners and five in-house lawyers scrolling through leases and tenant negotiations in all our different jurisdictions so we can understand exactly what is going on.

‘We are assessing what governments have announced so far and what they mean to our businesses.’

The crisis has thrown up an array of interesting issues. For example, when a government says it wants local banks to forbear interest, do banks have the legal requirement to do so? How will tenants receive that if you are a landlord?

Another question is, if a tenant has been shut out of the office by a landlord for whatever reason, is the contract broken? In London, there is a big debate going on about that, says Breslauer. ‘When the government said only essential workers should go out to work, a lot of landlords shut their offices. Have they violated the terms of the lease?’

And here is another situation: in Europe, if you do not actually bill your tenant even though they are not paying the rent, does that all of a sudden negate the contract? The list goes on.

Show of solidarity?
To some extent, the Covid-19 pandemic has transcended normal business practices centred on self-interest only. Even without government emergency tenant protection laws, landlords have been affording rent deferments to tenants. There is a degree of solidarity. But not everywhere is the same.

Sven Keussen at Munich-based Rohrer Immobilien considers Germany’s new law to be ‘reasonable’. It stipulates that tenants who are unable to pay the rent due to the impact of Covid-19, cannot be evicted. Tenants are not liable to pay the rent from April to July, but they will have to pay it back by July 2022, including interest which is above 8%. Tenants have to provide proof they cannot pay the rent because premises are shut or turnover is down on previous months and years.

However, not all share his belief that this is reasonable. ‘The private landlords association has cried out,’ he says. ‘They say the government should also give liquidity to landlords to help them.’ The private landlords’ association mainly represents smaller private residential landlords. But commercial landlords are also unhappy.

However, there seems to be a different attitude among the bigger landlords. ‘All the big landlords I know are helping their tenants. Most of them are agreeing to defer rents. Some of them are saying you do not need to pay the rent at all for one, two or three months – it is a gift – but that is only some of them.’

There is a calculation behind this stance of forgoing rents. If the tenant is a business such as a hairdresser or a bar owner, it will not be able to suddenly earn enough to pay the arrears and that month’s rent when things return to normal. So why not just make a gift of it otherwise the landlord could end up with an empty unit anyway with lost income and agent’s fees. However, what if things drag on for more months?
‘Perhaps for landlords with equity they could gift one or two months’ rent. But if this turns out to be longer, it could become a big problem.’

Help for small businesses
Germany recently announced new funding in the shape of state loans for small and medium-sized companies of up to €800,000 depending on the number of employees, at a rate of 3% over 10 years. Other aid varies from region to region. In Bavaria, companies can get fast-tracked loans. There is a sliding scale of grant up to €100,000, depending on how many workers the firm employs.

But although there is government assistance, the biggest problem, says Keussen, is that the banks do not – yet – have the capacity to get the money from the state to commercial entities that need it.

For the moment, the property management arm of Rohrer is dealing with each tenant request on a case-by-case basis. Tenants who cannot afford to pay rent must provide proof that this is due to coronavirus. So far, there have not been problems.

Commenting on government measures proposed in Portugal, Paulo Loureiro, CEO of private equity investor Bondstone, says: ‘It’s still early days but it would be fair to say that reactions to the proposed measures have been far from enthusiastic, given the legislative bill in its current form appears to asymmetrically favour tenants over landlords, although tenants will argue that despite the flexible nature of payments, they will only further contribute to overall levels of indebtedness.

‘Landlords would prefer to see the government held responsible as a joint guarantor for the debts of the tenants to the owners, which would help protect them from potential financial distress further down the line. However, we believe the current imbalances will likely be amended as further government policies are implemented to support the financial wellbeing and conditions of all parties.’

In the Netherlands, government authorities and organisations representing retailers, investors and banks have agreed guidelines to help shopkeepers cope with the loss of income stemming from the lockdown. Measures include rent suspension and a ban on evictions for a three-month period. A key element of the package is that it is based on fairness and is not misused by ‘easy riders’. Although a general shop closure is not part of the government’s measures to stem the spread of coronavirus, many stores have closed their doors because of the lack of customers.

Meanwhile, Rabobank, the biggest property financier in the Netherlands with a loan book of around €21 bn, is looking at requests for help from property borrowers on a case-by-case basis. Roel van de Bilt, head of real estate finance at the bank, says whether a landlord is letting a property to a supermarket - which is doing well in the crisis – or a store that has been forced to close due to coronavirus is ‘a totally different story’. This is the reason why there is no ‘blanket measure.’

But Van de Bilt, who heads a working group for commercial property within the Dutch Association of Banks (NVB), notes that ‘banks want to be part of the solution’. ‘In this situation, the name of the bank doesn’t matter anymore, what matters is the help offered.’

Ethics in Italy
Italy has been one of the hardest hit European countries in terms of the number of deaths. Perhaps this is why the ethical side to the landlord/tenant debate is felt particularly strongly here.

Olaf Schmidt, a lawyer at DLA Piper, is into his fifth week of lockdown in Milan. ‘Italy has suffered the most. I would characterise things as friendly and respectful. The dimension of the crisis has almost set aside business attitudes. It is about helping each other survive.’

In Italy, there is no law that suspends the rental obligation for tenants. But there is one that protects them. It is applicable to all industries but particularly suited to real estate leases, explains Schmidt.

If a tenant does not fulfil the terms of a contract (i.e. pay rent) due to Covid-19, this has to be vetted by a judge; a landlord’s termination request does not suffice as justification to terminate the lease.

Says Schmidt: ‘I think Italy is the only country that has this law. What the Italians have done with this law is come close to saying you do not have to pay rent. You are not risking termination of your contract – that’s a very clear statement.’

He is advising directly on multiple landlord/tenant situations across Europe. The advice to all large landlords is to reach out to tenants. ‘Every memorandum concludes it is highly advisable to reach out for some sort of compromise that helps both get through the crisis. For tenants, the advice in memoranda will say “be careful, you are not entitled to suspend rent payments.” It is advisable to go to the landlord now and compromise, which in most cases means a suspension of rent.’

The dialogue between property lenders and landlords is similar; lenders should be careful not to talk about loans being waived, but debt deferral compromises are being agreed.

Survival mode
But not every tenant is behaving the same either. Adidas, for example, caused outcry when it said it was suspending rental payments to its landlords – a decision since reversed following a backlash.

Manfredi Catella, founder and CEO of Italy’s Coima, says there are certain tenants – like Adidas but also others – that have been trying to say they won’t pay rents.

‘For me, the real topic is not necessarily if tenants pay because this is contingent on the circumstances of the contagion. What I believe is more important is the macroeconomic side. When will the lockdown finish? How solid will the liquidity response be? But there is the ethical part. You can have a bilinear approach: if you die, the other lives; if the other dies, you live. Or you can take a second approach: the only way to survive is to create solidarity. There are certain tenants who have taken the first position, and I believe this is not responsible.

‘At a certain point, things will get better. Those that have not been responsible will be remembered. Those that have not been responsible will receive exactly the same treatment back.’