View all articles
Retail tenants in a major shopping centre in London were shocked to receive a blunt warning from their landlord. It said in no uncertain terms: pay your rent or the next step is court.
Before Covid-19 struck, commercial landlords considered court action as a last resort, only done when all other steps to recover the rent had failed. But not anymore.
Commercial landlords are under just as much pressure as their tenants. Cash flow is king in any business, so when your tenants skip their quarterly rent payments, your business model is in trouble.
The letter from Criterion Capital was sent to a number of restaurants and shops. It stated that the landlord’s mortgage providers were insisting statutory demands were issued on overdue rent. It is a sign of how precarious life is for businesses in retail and hospitality.
Big Brands on the Brink
Several big brands are already on the brink, including high street stalwart, Debenhams, which is to file for administration. Many others have been trying to renegotiate their rents with landlords. But landlords are suffering too, having experienced a significant deduction in their incomes. Already difficult relationships have been soured even further, as evidenced by the brusque letter from Criterion Capital.
Figures in the Financial Times, sourced from the British Property Federation, reveal that commercial landlords in the UK were due around £2.5 billion in quarterly retail rent at the end of March, but received only a third of the amount owed.
One of the largest retail landlords, shopping centre owner Intu, only received 29% of the rent it was owed. Intu was already in trouble before the pandemic. It has since told tenants that rent is due, even if the payments are deferred, and has reminded tenants that this debt is legally enforceable. If the money is not forthcoming, Intu may not survive either.
Businesses Go Bust
Those tenants in businesses after the Covid-19 crisis is averted might be able to settle their debts, but it’s likely that a large number of retailers, bars, cafes, and restaurants will be gone within a few months.
In the US, the situation is similar. Many retail businesses are refusing to pay their rent and landlords are facing a huge rent shortfall. There’s a similar situation happening in Australia, where one of the largest retail tenants is refusing to pay rent for the duration of the shutdown, presumably to retain cash.
Refusing to pay landlords their rent is only pushing the problem further up the chain. Landlords usually have mortgage debts to service, so when they don’t receive rental payments, they can’t make payments to banks.
The government has appealed to commercial landlords to reduce rents for affected businesses and one major landlord, British Land, has waived rent for smaller tenants, which will cost the business around £3 million.
Bad Publicity for Struggling Landlords
Tenants say it’s unfair to enforce rents when they can’t use the properties they are paying for and many credits are wary of the bad publicity caused by putting pressure on struggling businesses. However, as one expert says, landlords would like to agree to concessions and deals, but they have their own debt to service.
The retail sector will be a very different place in six months’ time. How many businesses and commercial landlords remain standing is anyone’s guess. Only time will tell.
