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Commercial landlords are accusing tenants in the retail and hospitality sectors of deliberately withholding rent to save money while they navigate the stormy waters of the current coronavirus crisis. Many landlords are now threatening legal action in a bid to recover the outstanding rental payments.
Winding Up Petition
One restaurant chain, Caffe Concerto, has been hit with a winding up petition, which could force the company into compulsory liquidation. Describing the current situation as “a serious problem”, chain director Stefano Borjak told the Financial Times:
“They are trying to wind up the company, which does £40m turnover per year. The cash flow we have at the moment we need to pay staff.”
However, the landlord, Criterion Capital, is demanding the outstanding £100k quarterly rent payment and it doesn’t seem inclined to wait for the business’s cash flow problems to resolve.
Other businesses have also been threatened with legal action if they don’t pay their outstanding rent.
Rent Must Be a Priority Business Expense Say Landlords
Landlords say businesses must treat rent as a priority business expense, even though current trading conditions are unprecedented. Some landlords have offered struggling tenants discounts and deferrals, but many tenants say this is not enough to help them right now. They point out that revenues in retail and hospitality will be lost not deferred, so kicking the ball down the road won’t help them now or even later.
However, commercial landlords often have loans to service and can’t afford to give their tenants a rent discount or payment break.
Larger commercial landlords are not wasting any time taking action against tenants, which is pushing businesses into a corner. Some will have no choice but to voluntarily dissolve their erstwhile successful businesses because they don’t have the cash right now.
Government Coronavirus Assistance for Businesses
The government has put a package of measures in place to help struggling businesses and landlords. These include deferred VAT payments, a Statutory Sick Pay relief package for SMEs, and a business rent holiday. Larger businesses can apply for Coronavirus Business Interruption Loans to help them weather cash flow crises. However, for most businesses, rents are their biggest expense, second only to payroll. Since it could potentially take many months or even years to recover from the economic downturn caused by coronavirus, borrowing from Peter to pay Paul might not be enough.
Private sector landlords have been given the option of a three-month payment holiday if their tenants are unable to pay the rent, but help has not been extended to commercial landlords. As such, they have no choice but to pursue their tenants for outstanding rental payments.
How many businesses are left when the country finally returns to normal remain to be seen. It’s likely that many sectors, in particular, those in retail (who were already under pressure), hospitality, and travel will be decimated, so commercial landlords may have a lot of empty units in their portfolio.
