Has the Government’s action to protect tenants from eviction under commercial leases simply encouraged unsustainable levels of non payment of rent?

A couple of days ago I cautiously wandered into a local food store, hand sanitiser applied and social distancing at the forefront of my mind.

Interestingly, shelves were well stocked. The over 70s clearly hadn’t made too much impact during their allocated shopping hour and dedicated teams were replacing products in every aisle.   

What I did observe (and these are currently common place) were the signs asking shoppers to be considerate and respectful when buying the key products that are at the centre of ‘panic buying’.   

Don’t stock up on more than you need. It is a simple message from retailers. The hope being that if we can all apply restraint then supply can be maintained and we will all get through the Covid – 19 crisis together.

In retail property there is no reason why the same principles should not apply.

The Landlord’s Perspective 

The retail property sector did not have its troubles to seek before anyone had heard of coronavirus. The biggest retail landlords and funds were openly talking about the massive challenges they were facing as retail property values slumped. It follows then that if the response to the current crisis is mishandled the results could blight retail property for years to come. 

Vibrancy, variety and attraction are at the heart of the best retail schemes. These qualities arise from the skilled and dedicated work of landlords and their teams. Their loss would be detrimental to all.   

Landlords (like their retail tenants) have had no hand in creating the current crisis. They will however, as with many businesses, see an extended period of restricted income. Most will have lenders to answer to. Others will be funds with investors looking for an explanation on returns. Unlike tenants, landlords have been slower to see Government assistance.  While it is hoped that banks will be flexible, circumstances elsewhere in the real estate finance sector could be less forgiving.  

Be Considerate 

That the retail property debate is focusing on rental payment is not a surprise. The UK Government intervened on 25 March to stop landlords terminating commercial leases for non payment of rent. The date was significant as it is a rent payment quarter date under the majority of English commercial leases. In Scotland the next traditional rent quarter date falls on 28 May when discussion will again intensify - and so the Scottish Government has enacted similar arrangements. In England landlords cannot forfeit leases for non payment of rent prior to 30 June 2020. In Scotland the usual 14 day period of grace required before terminating (irritating) a lease for non payment is extended to 14 weeks.    

A torrent of anecdotal evidence has quickly amassed to suggest that retailers of all kinds responded to Government intervention by seeking rent concessions from landlords. Some swift restraint and reflection is required though. 

A distinction can be drawn, for example, between essential and discretionary retailing. Food retailers are experiencing demand akin to the Christmas shopping surge. Fashion retail however, is seeing a steep sales decline. As one commentator observed – ‘who needs a new outfit to stay in-doors’. 

So, we expect certain retailers to require urgent assistance. For others it could be almost ‘business as usual’ or, in some cases, they face extraordinary demand. Those who don’t need emergency measures should therefore allow what flexibility landlords can muster to be afforded to those who require it most. Don’t stock-up on more than you need! 

A balance is also called for. The best solutions in the current circumstances will be those arrived at through agreement.  If a retailer needs help now, can they offer a quid pro quo? We have, for example, heard of retailers offering to extend their lease term in return for some reliefs during the current crisis.  

Government measures are aimed at supporting ongoing conversations between landlords and tenants and will hopefully be used as a tool for that purpose. 

Be Cautious

The symbiotic relationship between retail tenants and their landlords has become ever more fragile in recent times. The undeniable truth is that each needs the other. The sector needs to pull together and in many instances ‘do whatever it takes’ to get to the other side of coronavirus.

Government measures being introduced are part of the picture. Rates abatement for 12 months, temporary relaxations on planning restrictions and the like will assist but are tenant focused. Commercial agreements between landlords and tenants are another element in the plan to keep the sector functioning.

We are aware however, that some occupiers are moving forward and demanding rent holidays whether their landlords agree to them or not. It is not yet clear how that will play out. Caution is required. After previous crises have passed and the ‘in the moment’ sympathy has evaporated, litigation fights have ensued. Tenants are well advised speak to their landlord, get professional advice and to properly consider the terms of their leases before forging ahead.

For now the hope is that the retail sector follows the examples we hope to see in our communities. Be understanding, work together and look out for each other!

GRAEME BRADSHAW
graeme.bradshaw@burnesspaull.com
0141 273 6976 

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This article was originally published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.