What corporate tenants and landlords need to know
They’re designed to alert policy makers to small or big changes that occur as close to the time as possible.
Some are informational – like how much petrol you have – but some also alert to bigger changes that if left unchecked could have negative consequences – like the oil light coming on.
In the case of the economy, one indicator is taking place this week – rent day.
Traditionally this is one of the four days a year – one in each quarter – when businesses and retailers pay three months rent to their landlord.
It’s generally done quarterly and three monthly for traditional reasons but under normal circumstances can help businesses with their planning and budgeting. If they pay their quarterly amount in advance, they can concentrate on making profits rather than worrying about raising enough to make the rent at the end of the month or week.
Some stores have already shifted to monthly rental payments as they are unsure of their long term viability and others still have agreed or negotiated to move to a turnover-based system where they will pay a proportion of the money they make rather than a set amount.
We hardly need to remind you that 2020 is anything but normal circumstances so rent day takes on additional significance both as a general indicator of economic health and as a financial necessity for the landlords themselves.
The British Property Federation, which represents commercial landlords, estimates that as much as £4.5 billion in due rent will be unpaid from mid-March until the end of the year as a result of the Covid-19 crisis.
On the last rent day back in June, only 18% of owed rent was paid on time to landlords although this later rose to 70% by the end of August.
A big shortfall
The first preliminary figures are in and they don’t look great. According to Retail Week, only 12.7% of owed rent was collected by increasingly furious landlords who are now contemplating what measures they have available to them.
Melanie Leech of the British Property Federation said: “Rising debt is too high a mountain for businesses and property owners to climb on their own.”
The BPF are arguing for more support for businesses who cannot pay their rent. They say that the government should provide support through a “bounce-back grant” that covers half the rent while landlords and tenants agree on how to make up the other half.
Of course there are other methods of dealing with forthcoming rent deadlines including the controversial but growing method of not paying.
Earlier this year we covered an increasing number of reports that retailers including big high street names such as Burger King, JD Sports, Primark, B and Q and TopShop had taken the controversial step of withholding all payments from their stores until landlords accepted lesser amounts or switched to a more equitable system as they saw it.
As the Coronavirus pandemic shows no sign of abating, neither does the economic equivalent with other businesses taking their lead and deciding to use the leverage of the circumstances to rewrite the rules for their own benefit.
Boots are the latest big name that are reported to have withheld the rent in their 2,400 UK stores.
They said: “We’re continuing discussions with some of our larger commercial landlords on options for rental and service charge payments in light of the Covid-19 pandemic.
“We stayed open throughout the pandemic to provide a pharmacy for the patients who needed us but retail footfall across our estate significantly reduced and trading has been severely impacted” they added in an official statement.
Under current legislation and circumstances there is very little a commercial landlord can do.
A moratorium on company evictions for non-payment of rents was introduced in April and recently extended until the end of the year.
Some businesses such as New Look and Poundstretcher have secured rent reductions as part of CVA processes agreed with their creditors and while other such as Ann Summers are using the threat of a CVA to persuade landlords to lower rents preemptively, well-capitalised and secure tenants such as Boots won’t have this option available to them.
Trying to keep up to date with the various rules, guidance and obligations that are changing can be like trying to follow a game of 3D Chess. Confusing, disorientating and your opponent is literally one or more steps ahead.
If you’re a landlord that’s worried that your previously secure portfolio is falling apart around you or an otherwise profitable business that’s struggling to meet obligations you could have paid from petty cash – don’t panic.
As well as being able to lend an expert ear, we can tell you about rule changes you might not know about that could be to your advantage.
Bills and rent days will always come due but your window of opportunity won’t be – the quicker you act the more options and maneuverability you have.
Don’t waste it.