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PROPERTY REPORT
By Ged Henderson
SHARING THE PAIN
Commercial property landlords and tenants are being urged to work together to ‘share the pain’ being inflicted by the coronavirus crisis.
It is a pain that has been felt on both sides as enforced closures on the high street and the lockdown on pubs, bars and restaurants have had businesses struggling for survival.
With tenants unable or unwilling to pay their rent bills, landlords have been put under pressure themselves. One survey of property managers revealed that UK landlords collected just 57 per cent of rent due for the March quarter by the end of that month. There are fears the situation is going to get worse.
David Bailey, head of commercial property litigation at Lancashire-based law firm Napthens, sums up the situation. “The pandemic is a game changer for the usual landlord and tenant relationship,” he says.
However, he adds: “It’s not in anyone’s interest to take an extreme position, either the landlord or the tenant of a commercial property.
“In most cases it is not appropriate for landlords to pursue every penny of rent when they know a tenant is struggling in the current circumstances. Also, in most cases it is not appropriate for tenants to refuse to pay anything.
“By working together and considering the specific circumstances of the subject property, the landlord, the existence of any support from the landlord’s lender, government financial help available and the tenant’s business, both parties can come through the challenges.”
Mary Hickman, director of Preston-based chartered surveyor Eckersley, says she has seen a “broad range” of approaches from landlords and tenants to the pandemic.
Hayley Bamber
“At present the need for continued communication between landlords and tenants is greater than ever as the impact of the pandemic has resulted in a dynamic situation which continues to evolve.”
Mary says that initial forecasts suggest there will be an “adverse impact” on retail rental values and levels of demand from prospective occupiers.
Michael Cavannagh, director of east Lancashire- based commercial property consultants Trevor Dawson, agrees that the partnership approach is vital in the current situation.
She says: “Some landlords do seem to consider the impact and financial burden to be purely a tenant’s problem whilst others are taking a more pragmatic view to the situation and are willing to discuss revised payment programmes and, in some instances, be prepared to share the pain Covid-19 has created.
“Conversely, it is also reported that there are tenants who some consider are taking advantage of the situation and simply ‘pulling the shutters down’ on rental payments whether they are suffering financial hardship or not.
He says: “While the country has been in lockdown very few new lettings have taken place and deals that had been negotiated have been put on hold.
“Tenants, particularly in the retail and hospitality sectors, have been requesting rent deferments or even rent-free periods during their existing agreements.”
He adds: “Retail is the main worry for us and will take the longest to recover especially with a new wave of online users. We have seen lease renewals agreed with a one-year rent free on a ten-year lease, which we have not seen since 2008.
“Break options will become more prevalent with tenants wanting to minimise risk going forward until we get more certainty.”
Looking at the question of assessing rent in the present climate, where a lease renewal or review becomes due, he says: “Market transactions provide the comparable evidence upon which negotiated rents at review or lease renewal are based, yet there are few deals taking place.
“Should the new rent be based upon pre- lockdown deals, which may not reflect the new reality going forward, or should the landlord and tenant try to predict the ‘new normal’?”
He adds: “We have seen landlords concede rent free periods upon lease renewals, reflecting the short-term agreements being reached in the market during the unprecedented lockdown.
“However, the basic or headline rent can be more difficult to ascertain, particularly in the sectors which have been most affected by social distancing. Can we be certain what the world will look like for restaurateurs in 12 months’ time?
“In many cases at lease renewal both the landlord and the tenant are looking for some
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