Cyril, we will have to hold on regarding discussions on this project because of the Covid-19 pandemic. We will pick it up again when all of this normalizes”. That was a director of a company telling me over the phone the need to adopt a wait and see before putting pen to paper. “Well, thank you very much Mr. Covid-19, congratulations for stalling and hurting what would have been a great deal!” The rippling effects of this virus has been sharp, jobs and contracts lost, businesses on hold, loss of revenue and income streams and I am sure there are several others out there who have hard to bear the brunt of this coronavirus/covid-19 pandemic as well. Are you are broker, mortgagor, tenant, landlord, developer? Then you are the one I am speaking to. The good book however says not to despair, so what are the practical steps we can take to overcome the situation
Impact on real estate developers
It is open secret that real estate developers access project funding from banks and financial institutions with most selling off plan (selling while construction is yet to start or development still under construction) in the hope that these sales and by extension revenue or cash inflows will be sustained once project is on course and on time. Time clearly is absolutely crucial as this pandemic has thrown or disrupted completely the project schedules. Buyers are adopting a wait and see attitude, meaning they are less inclined to invest when they are uncertain of delivery of the project; material suppliers are also less likely to supply with usual credit lines because of same uncertainty. With construction not classified as an essential service, labour or site hands to undertake the construction will be unavailable due to full or partial lockdowns throwing construction timelines out of sync. And as for property viewings which require physical presence, they have dropped significantly as prospects a distancing a s much as possible
If you are a developer, what can you do? Well, in Ghana and unlike France where the impact of covid-19 has been fully recognised as an act of nature or force majeure, you are still bound and obliged to fulfill your contract. The only good thing is that, some institutions are putting a human face in the midst of the pandemic, hence you can at this point appeal or renegotiate the contract terms and request for a moratorium or grace period pending normalization. If the appeal doesn’t suffice and you are most likely not able to argue force majeure, speak to your lawyers to explore the possibility of frustration of the contract clause. The lawyers can best advice, it’s not all gloom, not just yet.
Impact on landlords and tenants
And by tenants here, I don’t mean only residential tenants but also commercial tenants. If you are a residential tenant and are self-employed, your situation is direr as the impact or specifically, cessation of cash inflows will hamper your ability to renew leases or rents. Same applies to commercial entities who may even be locked in longer term leases and who though needing periodic renewals may find themselves tied down with such a drastic toll or slow sales,. Even worse are the businesses that have been affected by the lockdown and are simply unable to do regular business due to the shutdown. In some countries, like the UAE, landlords are being sensitive to the situation and giving a 3 month reprieve while in New York there is an eviction moratorium too.
In Ghana however, I am yet to come across any such measure and hence it’s not only the tenants that suffer but the landlords as well whose potential income stream will most likely be curtailed. So, what do both parties do even while there is growing uncertainty as to restoration of normal times. In these times, the soundest approach is to avoid being legalist and rather employing negotiation as much as possible by seeking moratoriums and rental concessions. It is also recommended that you pick up for review that lease agreement again, to check if by any chance, there is any insurance cover with respect to specific policies like General Liability, Business Interruption or Crisis Management insurance etc.
In sum, these aren’t normal times and definitely not the “I know my rights” times. These times call for calmer heads and constant review and renegotiations of contractual terms and conditions by all parties in the real estate supply chain. Are you with me?
The writer is the Executive director of Yecham Property Consult & Founder of Ghana Green Building Summit.
Linkedin: Cyril Nii Ayitey Tetteh