In a letter to Alok Sharma, the business secretary, the British Property Federation (BPF) has called for an end to the restrictions on commercial rent collection. They were introduced at the start of the coronavirus lockdown to support businesses who were forced to close.
Throughout the COVID-19 restrictions, retailers and commercial landlords have clashed over the payment of rent. A number of high-profile retailers have held back on their March and June quarter rents or started negotiations for a discount.
However, the chief executive of the BPF, Melanie Leech, has accused some businesses of abusing the moratorium to improve their own cashflow. In the letter to Mr Sharma, she wrote: “This behaviour has undermined the ability of property owners to support those businesses in genuine need, as income from more robust occupiers is critical to cover the cost of providing rent holidays to more vulnerable ones.”
The call for the restrictions to be ended is backed up by a number of leading property companies. This includes Neil Slater, global head of real estate at Aberdeen Standard Investments; David Partridge, managing partner of Argent, the developer behind the regeneration of London’s King’s Cross; and David Atkins, of Hammerson, owner of Birmingham’s Bullring.
According to research from Remit Consulting, 36.7% of commercial rent remained unpaid 35 days after the June quarter due date. The next quarter’s rent will be due on 29th September. This is just one day before the current moratorium on lease forfeitures is due to expire. The government is expected to make a decision shortly on whether this will be extended or not.
Commercial rent payments
Speaking to The Times, Peter Cowgill, executive chairman of JD Sports, hit back at landlords who wouldn’t enter rent negotiations. He said: “Landlords between 2007 and 2015 were increasing rent on a compound annual growth rate of 4-5 per cent every year and they didn’t give a flying toss if I was making any money or not because at the time demand exceeded supply. Well guess what — the boot is on the other foot now.”
Dealing with the coronavirus restrictions, including the move to more online shopping and store closures, has cost JD Sports two-thirds of its profits. However, it still managed to maintain 90% of their sales and have £764.9 million cash on its balance sheet.
This week, Property Week, reported that Subway has written to landlords requesting a move to monthly rental payments. It has also said that it won’t pay any rent owed for the second quarter. If landlords agree to these terms then the company ‘will not seek any discount on the June 2020 quarter’s liabilities under the lease’.
Coronavirus commercial rent restrictions
Currently, landlords are not allowed to exercise their right to forfeit commercial leases for non-payment of rent. In order to begin the Commercial Rent Arrears Recovery (CRAR) process, the tenant needs to owe at least 189 days of rent. The government increased this from 90 days in June. Prior to the coronavirus regulations, this had been seven days or more.
It also introduced a Code of Practice for both tenants and landlords to follow when dealing with arrangements surrounding rents, service charges and insurance.
These restrictions have impacted on the financial performance of many landlords, particularly those with small portfolios. The BPF, in their letter to the business secretary, said that the ban was ‘undermining the UK’s attractiveness’ as a destination for property and development investment. This could undermine the UK’s economic recovery as the restrictions are eased.