Hospitality operators and landlords should “share the pain” and split rental arrears 50-50 if unable to pay outstanding rent, according to a new proposal drawn up by institutional landlords.

The proposal, from British Land and Landsec, with the British Property Association, says final settlements should be informed by the relative scale of the businesses involved.

Where an occupier has been unable to meet its rental obligations in full, but has been able to trade with restrictions, they should share their books with their landlord to negotiate and agree an “equitable solution” based on a fair assessment of the impact of the pandemic on their business.

In line with government advice, it urges those business that can afford to pay to clear their arrears in full - although it should be open to the parties to negotiate a schedule for clearing those debts to preserve cash-flow.

The proposal, which seeks to solve one of the most challenging problems of the pandemic, looks to draw a distinction between rental arrears accumulated during periods of restrictions, and the trading period after 30 June, when the enforcement moratorium ends and unrestricted trading is allowed to resume.

Interest should be capped on arrears to avoid excessive interest building up, the plan suggests.

But a blanket write-off of debt should be avoided, as it would unfairly penalise the businesses that have continued paying rent throughout the crisis, while reward similar-sized, well-capitalised operators that have not paid.

Where an occupier and a landlord cannot reach a settlement, they should submit to a binding arbitration, which will use an enhanced code of practice as a guideline to what a reasonable compromise should be.

The plan advocates extending current restrictions on the use of statutory demands and winding up petitions, though debt action through the courts would still be available if considered appropriate.

As a condition of this, and a 3% cap on late payment interest, operators should be restricted from using insolvency processes to clear their debts.

The proposal is targeted at all food and beverage, retail, hospitality and leisure businesses.

Landsec and British Land write: “Protecting jobs is our primary aim and we will do everything in our control to avoid any cliff-edge of job losses caused by the moratorium being withdrawn.

“We want to see the market returned to normal operation as quickly as possible without government being burdened with either long-term support of a sector or a role that opens it up to legal challenge.”

They argue settlements must reflect “the relative strengths of their businesses and their ability to trade over the last year”.

The landlords urge the government to create the right conditions to bring landlords and occupiers together to negotiate where arrangements have not been concluded, and provide certainty with what will replace the moratorium, and setting out its guideline for what it believes would be a fair way to share costs through lockdown periods.

The solution should only apply to rent arrears where payment agreements have not yet been reached between landlords and occupiers.

Arbitration should be a last resort but a binding one.

Simon Carter, CEO of British Land, said: “We believe this is an equitable way forward for property owners as we start to emerge from the pandemic and the UK economy opens up. Difficult problems require compromises on all sides, and our proposal recognises and addresses the challenges the property, retail, hospitality and leisure sectors have faced over the last year.”