Tenants and landlords ‘must talk’ as rent debt mounts, expert warns

Felixstowe high street at 1.30pm on the first day of the new Tier 2 coronavirus restrictions

East Anglian high streets have suffered big drops in footfall under various coronavirus restrictions - Credit: CHARLOTTE BOND

Post-pandemic commercial tenants are looking to enshrine emergency cuts into their standard leases as the two sides readjust to what could be come a “new normal”, experts suggest.

Stuart Raven, a partner in the commercial property team at eastern region law firm Birketts, said tenants were “routinely” seeking big rent cuts in the aftermath of the coronavirus crisis. 

He urged landlords and tenants to communicate with each other as they find ways to contend with record lows in footfall and cashflow issues in the wake of the pandemic.

Inevitably government action has focused on protecting jobs and incomes — and addressing the plight of commercial tenants such as those in the retail and leisure sectors which saw incomes disappear overnight while rent debt mounted, he said. 

As a result, tenants have been shielded from the bailiffs by a moratorium imposed on seizing back properties where rent is unpaid. And commercial landlords have sought to work with their tenants through the crisis, he added.

“Our experience over the last few months is that most landlords are looking to the future, playing a longer game and working really hard to sustain good landlord and tenant relations,” he said.

“In practice, we’ve seen real collaboration and common sense — mutually agreed arrangements for rent suspensions, rent suspensions with reversionary leases and even rent holidays.”

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But hastily conceived concessionary arrangements put in place at the height of the crisis were quickly finding their way into new lease negotiations, he suggested. 

“Numerous tenants  — especially those in the sectors most affected by the lockdowns — are routinely seeking to enshrine rental concessions into the standard commercial lease, and who can blame them? But whether this becomes another “new normal” remains to be seen.”

The British Retail Consortium (BRC) estimates that footfall fell by 73.5% between February 2021 and February 2020.  But despite the huge decline due to the closure of non-essential retail, February 2021 was still 3.4% up on January 2021. The cost to retailers of the UK’s three lockdowns is estimated at more than £22bn.

The high street’s pain is expected to continue at least until its planned reopening on April 12.

It means that with the moratorium in place, commercial landlords could be left without an income — and with no guarantee that rents will be paid at the end of it.

But tenant-landlord relationships had benefited from collaboration and mutual agreements during the pandemic, said Mr Raven, with rent suspensions and revisionary leases working in the short term. 

The long term-picture is less clear, with businesses in sectors worst affected by the crisis now routinely seeking the rent concessions, he added.