Property experts have warned that some landlords are still taking a “hard-line” approach to pursuing rents due on closed stores, despite government restrictions on aggressive collection tactics.
Last month, the government introduced a temporary ban on commercial property owners’ use of debt-recovery methods such as statutory rent demands and winding-up petitions for companies that cannot pay their rent bills because of coronavirus.
However, Drapers has learned that some landlords are still aggressively pursuing rent payments, despite all “non-essential” stores ordered by government to close on 24 March.
Intu, which owns shopping centres including the Trafford Centre in Manchester and Lakeside in Essex, has warned it is prepared to take “robust action” to enforce the legally binding terms of its leases in a few cases against “well-capitalised brands who have the ability to pay but have chosen not to”.
Drapers understands that, despite the government ban, this could take the form of statutory demands on the grounds that the retailers have the money to pay.
Drapers has contacted Intu for comment.
”The unfortunate consequence of the government’s request for landlords not to use aggressive tactics is that they are using aggressive language instead,” said Mark Burlton, managing director of independent retail real estate business Cross Border Retail.
Commenting on reports that property owners have formed a “Landlords Union” to lobby for government support, Burlton said: ”They are becoming unionised and, while there are clearly negotiations taking place, to my mind any government support should be aimed at a permanent change to landlord and tenant law.”
“Institutional landlords have offered very little or nothing [in the way of support],” said Charles Clinkard, managing director of the footwear retailer of the same name. Around 15 of the retailer’s 30 stores are leased from institutional landlords.
“The best we have had is from British Land [owner of Teeside centre in Stockton upon Tees, where Charles Clinkard has stores] which has offered to defer payment to September but then want it back over the next four quarters. Intu has offered us nothing, despite us having written and asked for various concessions.
Intu announced in March that it will slash service charges by 22% in the second half of this year, and it is understood that it is offering some tenants monthly rather than quarterly rents.
Clinkard added: ”These landlords are in for a massive backlash for being so arrogant and short-sighted. We will probably shut all our stores at lease end with each landlord that has not supported us through this crisis.”
One property expert told Drapers: “Institutional landlords have been hard line from the start. They’re still demanding service charge and sending rent invoices to ramp up the pressure. They’re also chasing payments.
“They’re sending blanket emails across the portfolio because if they give one retailer a rent-free [period], then they have to give it to everyone.”
”While some [landlords] have proactively offered to defer rental payments, at the other end of the spectrum, we have experienced some landlords who are continuing to insist that rent must be paid in full immediately,” said Vicky Hernandez, retail estate team partner at law firm Royds Withy King.
“My concern for retail clients is that in many cases they are just delaying the inevitable. There will come a time when the government restrictions are lifted. Unless they have taken steps to prepare for this now and opened a dialogue with landlords, they may find themselves subject to debt-recovery action and unable to protect their positions.”
However, “landlords are now extremely limited in the action they can take [given the government’s ban on aggressive rent collection tactics”, said Hernadez.
Some have begun looking more widely at who is liable to pay rents, she told Drapers: “Landlords have started to serve section 17 notices on former tenants demanding that they pay the current rental arrears [for a property].”
The notice is enforceable where the previous tenant has sold or transferred the lease to a third party but provided a rent guarantee on the new tenant. The landlord is, therefore, able to claim payment of current rent arrears from the previous tenant within six months of the default.
Hernandez added: ”If we see the level of tenant insolvencies that has been predicted, this will have a huge impact on those tenants who manage to survive – [they] may be hit with a double whammy in having to pay both their own rent arrears and rents for former stores if the current tenants go into administration.”
It is understood that the government is in ongoing discussions with landlords about new support. The British Property Federation, Revo and the British Retail Consortium have called for a Furloughed Space Grant Scheme to allow landlords to subsidise rent.