06 April 2020 #Real Estate
For retail occupiers, the coronavirus pandemic could not have come at a worse time. Although the government’s extension of the three-month ‘forfeiture moratorium’ to commercial leases will provide some respite, for many retail occupiers the moratorium may simply defer the inevitable.
In the current climate, it is easy to feel sympathy for retail occupiers. They have already suffered a period of well-publicised decline due to our ever-changing shopping habits and the rise of e-commerce. A period of enforced closure is the very last thing they need.
But perhaps (dare I say it!) we should also spare a thought for commercial landlords, who are unlikely to escape the current pandemic unscathed. Many property owners (large and small) will have their own obligations to lenders and stakeholders, and few will be able to afford the luxury of waiving rents even in the short term.
Criterion Capital reported this week that it had received less than 30% of its rent for the current quarter. As a consequence, they have chosen to serve statutory demands to enforce unpaid rent payments, although point out that they have only served such demands on established businesses who (in their opinion) have chosen to use the government’s Coronavirus Bill as an excuse to withhold paying rent.
Another well known landlord and owner of some the UK’s largest shopping centres has reported receiving only 29% of it’s current quarter’s rent bill, providing yet further evidence that the enforced closure of restaurants and non-essential shops is hitting the pockets of both the retail occupiers and the owners of the buildings they occupy.
Our own experience over the past few weeks has shown us that some landlords and tenants are already taking a pragmatic view by accepting that there will need to be a period of ‘pain-sharing’ to ensure both are able to withstand this difficult period. One of UK’s major landlords has opted to wave the current quarter’s rent for smaller businesses at a cost to them of approximately £3 million. We have also seen examples of landlords accepting reduced rent and service charge payments or bringing forward rent-free periods not due until later in the lease term, in order to ensure that their high street units do not stand empty.
Earlier today, the Health Secretary suggested that the Coronavirus crisis could reach its peak over the Easter weekend. Last Friday the Prime Minister indicated that he would take a decision on extending the social distancing measures after the Easter weekend. Whatever the outcome of that reassessment, it is going to take some time for the retail market to recover, particularly with the loss of trading over what would ordinarily be a busy bank holiday weekend.
Believe it or not, most property lawyers are optimists and we remain hopeful that over the coming weeks and months landlords and tenants will be able to reach workable solutions so that both have the time to prepare and implement plans for what is likely to be a very challenging recovery period.
Pre-Covid-19, there were already some signs of recovery with retailers moving away from the traditional “high street”, seeking to offer the shopper an in-store experience to drag them away from online shopping. Changes of planning use have also been successfully employed to convert vacant retail space into leisure use, such as Swingers Golf in the former BHS store on Oxford Street. There will inevitably be some retail casualties as a result of the coronavirus pandemic, but we hope there will be an equal measure of innovation and creativity amongst retail occupiers and property investors that will help to revive and perhaps even revolutionise the retail sector.
Our Reading and London Real Estate teams have significant expertise in the retail sector, acting for both landlords and tenants. Please do get in touch with the members of our Real Estate Team for further advice.