Sector trends

How leisure and retail businesses can approach rental negotiations

As protection from eviction is extended for businesses, we look at how tenants can maintain strong relations with landlords, even while struggling to meet their rental obligations. Here are four top tips.

News that the government has extended its ban on landlords evicting businesses for unpaid commercial rent until 25 March 2022 has been met with a mixed response. While many businesses may welcome these measures, there is concern that a large proportion of profitable tenants may have avoided paying rent they could afford. According to two trade groups, UK Hospitality and British Retail Consortium, both sectors have amassed a combined £5bn debt in rent.

But any retail and leisure business taking advantage of the government scheme, whether struggling with revenue or not, risks higher long-term costs unless they get a grip on the situation in the coming months.

1. Familiarise yourself with the government’s advice

The latest version of the Code of Practice for commercial property relationships during the Covid-19 pandemic provides guidance to both tenants and landlords. It urges transparency and collaboration between the two parties and encourages them to act reasonably and responsibly. David Scott, the bank’s head of retail and leisure, says: “There are two sides to the relationship. Landlords aren’t a big, bad group of people; they are business people, like the rest of us, who provide a service that we all rely on.”

2. Seek professional advice as soon as possible

“Whether from a surveyor, solicitor or professional in the know, speaking to an expert is the best place to start,” says Neil Hockin, head of the shopping centre leasing team at of retail and leisure agency Lunson Mitchenall. “By not paying your rent, even though there’s this moratorium on rent collection, you are putting yourself at risk. Your problem’s not going away; you are just deferring it. Your lease provision could have some penal interest rating – as much as 4% above the base – and there may be better ways to finance non-payment of rent without putting your lease at risk.”

3. Maintain a paper trail of related correspondence

If you are claiming that you cannot afford to pay rent because, for example, you’re making pay cuts and having to make members of staff redundant, it is vital to communicate with your landlord.

By not paying your rent, even though there’s this moratorium on rent collection, you are putting yourself at risk. Your problem’s not going away; you are just deferring it

Neil Hockin
Head of the shopping centre leasing team, Lunson Mitchenall

Neil says: “Whatever correspondence you may have with landlords, their managing agents or their advisers, keep an ordered paper trail to demonstrate you are compliant with the code. If you haven’t paid all your rent, the landlord would quite rightly ask: ‘Can you afford to pay?’ And the issue is the code has no teeth. Even if the tenant can afford to pay and they don’t pay, a landlord still can’t take action because the code has removed that action from them.”

From 25 March 2022, though, late paying tenants will no longer be protected from eviction and may be advised to have an agreement in place setting out what happens next. “You need to agree something with your landlords if you can,” says Neil. “And, if they act unreasonably, you should get that documented, ideally with the help of your lawyer in a variation of the lease. If it’s just a side correspondence, make sure you have a proper paper trail. And in all cases try and demonstrate that you have acted reasonably.”

4. Think about trade-offs you can make with your landlord

It’s important to note that the financial dynamic of a landlord is different to that of a tenant. For instance, Neil and David suggest that many landlords will be happier to give a rent concession if the tenant extends the term of the lease. Indeed, they expect that some may even write off arrears in exchange for a contract extension of a year, or a rental uplift in future.

Finally, it is also worth remembering, David says, that both parties are learning how to adapt and trade through Covid: “We’ve never faced anything like this before, and there is a social responsibility in all of this on both sides to be honest and transparent.”

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