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Coronavirus: Retailers playing 'dangerous game' withholding rents

Retailers are only “deferring a problem” by withholding rent payments at this week’s March quarter deadlines, property experts have told Drapers. 

Delayed rents have put landlords under pressure to negotiate delayed payment terms to assure their stakeholders and banking facilities through the ongoing coronavirus crisis.

Following the March quarter deadline, Intu announced it had received less than one-third of its UK payments and warned of a breach of its upcoming debt covenants. 

British Land has said it will defer £40m in rents for this quarter, spreading repayments for retailers experiencing financial challenge because of the Covid-19 pandemic. 

It comes after the government announced protection from eviction for commercial tenants unable to pay their rental instalments over the coming three months. 

One landlord agent told Drapers that landlords having received “a third [of rent payments] was a fair representation”, of what occurred on deadline day. 

He said: “It’s positive for retailers in terms of the government stepping in, but it does put stress on landlords in terms of meeting banking covenants and financing debt, but also the duty of care to pension fund stakeholders.” 

“The overriding consensus is that they want to try to help retailers through this difficult period but there needs to be a mechanism where they get the rent back at a period of time. They can’t just write off three months’ rent.” 

Drapers understands landlords are taking different approaches to this: recovery payment plans, extending leases by three months, continuing to invoice to meet banking agreements or seeking further clarity around businesses’ coronavirus mitigation plans. 

Ahead of this week’s deadline, Primark told landlords that it was withholding its quarterly rent, in a bid to negotiate rental terms going forward. Others had asked for rent holidays or reductions for the coming months.  

Read more: Coronavirus rent concessions: who’s asked for what

”There were some retailers who I don’t think were quite ready in time for the March quarter day and there are a couple who are now looking to seek holidays from the June quarter day,” said one property source. ”Which obviously they will need to agree with landlords because the government’s direction is protecting retailers who don’t pay March quarters they don’t say anything about June yet.”

“It defers a problem,” agreed another property source. “The last thing retailers want is to not pay the rent for three months and then get a bill for six months because I don’t think the cashflow model will resolve itself overnight. 

“Where retailers take a reasonable tone of voice about either smoothing this out or postponing payment or rent then landlords will be reasonable back.

”However, those like H&M who fundamentally want to use this to change the terms of leases will be left acquiescing from the landlords.” 

Drapers understands that H&M has been negotiating with landlords to move to turnover leases in some cases.

Martin Edwards, property disputes partner at law firm Shakespeare Martineau, said: “Among all of the noise around withheld payments, all retailers must understand that the emergency legislation rushed through by the government this week does not mean they can avoid paying any rent at all.

“It is a very dangerous game for tenants to play. [Landlords] can still … seek recovery of those rent arrears as a debt against those who simply decide to stop making any further payment. News about major retailer tenants withholding all rent payments whatsoever in the hope of forcing negotiations with landlords must be treated with caution.” 

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