The March 2020 quarter rent day was memorable for many reasons. Since then, lockdown has bitten hard and for many food and drink businesses.
Creative operators rapidly reinvented their operations in response to the restrictions, while a lucky few have found their businesses well suited to the situation and have thrived.
Most, however, are in survival mode. And now the June quarter rent day is almost upon us.
The announcement of 100% business rates relief for retail and F&B occupiers in 2020/21 was welcome and the long-awaited review of the business rates system is due this autumn.
No measures have been brought in to stop rent being payable to landlords so rent continues to accrue and if it is not paid on time, interest will accrue on the debt. What has been introduced are limitations on the remedies available to landlords if the rent is not paid.
The Coronavirus Act 2020 has restricted the ability of landlords in England and Wales to terminate business tenancies for non-payment of rent. Currently, this will remain so until 23 August, though this deadline has been extended once and could be extended again. Landlords are also under temporary restrictions against taking control of goods on premises to enforce payment of tenants’ debts.
On the March rent day, some landlords and tenants negotiated agreements around rental payments including making rent payable monthly instead of quarterly, deferred payments and tenants giving up break rights or increasing the term of their leases in return for rent-free periods. In a small number of cases, the rent payable was completely waived for a period of time.
These deals were easiest to achieve where the only parties involved were the landlord and the tenant, but in many cases it is not that simple. If the landlord is itself a tenant then its landlord has to buy in to the deal. If any of the parties has a funder, any concession is likely to create a breach of security covenants for one or more parties so the consent of the funder is necessary. There are also potential issues around breaches of financial covenants in security documentation for one or more parties.
Another difficulty is around how open and honest the conversations between landlords and tenants are perceived to be. Landlords have to make an assessment as to how genuine a tenant’s hardship is.
In response to this situation, the government plans to publish by 24 June a code of practice to promote and assist discussions between retail and F&B businesses and their landlords over rental payments and to provide guidance on rent arrears payments. Although this is intended to be a temporary measure, the government will consider making the code mandatory if necessary.
The Corporate Insolvency and Governance Bill, which is likely to become law around 23 June, seeks to provide breathing space for struggling businesses helping them stay alive whilst they find their feet again, preserving jobs and helping the economy recover. The Bill contains a number of provisions that help businesses continue to operate and further limit the arsenal of landlords. These include:
- creating a moratorium during which no legal action can be taken against a company without leave of the court
- creating new restructuring procedures as alternatives to CVAs, which are often seen as unfair and disregarding the interests of creditors
- temporarily removing the threat of personal liability arising from wrongful trading for directors who continue to trade a company through the crisis with the uncertainty that the company may not be able to avoid insolvency in the future
- temporarily removing the threat of statutory demands and winding-up proceedings where unpaid debt is due to coronavirus.
Proposals for a Furloughed Space Grant Scheme were put to the chancellor by the British Property Federation, the British Retail Consortium and Revo. The idea was to have the government contribute a proportion of fixed property costs on a tapered basis according to the proportion by which turnover at the property has decreased. To date, this remains just a proposal.
A brighter future?
These measures should provide some relief for hospitality businesses in the short term, but we hope they could also have a longer-lasting legacy.
For several years the direction of travel for commercial retail and F&B occupiers has been towards shorter leases, more flexibility and more cooperation between landlords and tenants. Lip service has been paid to moving away from the established model leases.
But cooperation and modernisation has been far from universal. In prime locations landlords have been able to call the shots, resulting in ever-increasing rents followed by downturns characterised by empty units as tenants go bust. Shaftesbury and other landlords (some more openly than others) have acknowledged that today’s model is broken.
The coronavirus legacy gives the industry an opportunity to address this and modernise. We need to move towards a truly collaborative relationship between landlords and tenants, with both sides sharing information and working together to make their locations a success. The government has indicated a willingness to encourage “greening the recovery”. This could be a welcome by-product of a new era of collaboration by landlords and tenants.
This has to be embodied in occupational leases in order to work. That means that the professional advisers in the sector must work more closely than ever with landlords and operators to analyse, understand and embrace the changes. Landlords may take more business risk by using turnover rents more widely, tenants may need more flexibility and creativity to adapt their trading models in response to market changes. Both sides need to communicate effectively with each other and accept that they are a partnership that works best when it works together. Let’s turn this experience into something really positive.
Ingrid Saffin is a partner at Charles Russell Speechlys
Thoughts as we approach June Rent Day
The March 2020 quarter rent day was memorable for many reasons. Since then, lockdown has bitten hard and for many food and drink businesses. Creative operators rapidly reinvented their operations in response to the restrictions, while a lucky few have found their businesses well suited to the situation and have thrived. Most, however, are in survival mode. And now the June quarter rent day is almost upon us. The announcement of 100% business rates relief for retail and F&B occupiers in 2020/21 was welcome and the long-awaited review of the business rates system is due this autumn.