Commercial tenants seek 50% rent reductions
P.A. The company, which owns Beefeater and Brewers Fayre, said it had financially suffered from COVID-19 and sought a cut in rent payments due on Friday.
The tenants Premier Inn, Beefeater and Brewers Fayre owner Whitbread has put their landlords on notice stating they intend to pay 50% of the rent for the final three months of 2020.
It has been reported the company had suffered “significant” net cash outflows in the first half of the year.
A spokesperson for the business said: “Throughout the pandemic to date, we had paid our rent commitments in full, even when our hotels and restaurants were forced to close.”
“With ongoing Government restrictions expected to result in subdued market demand into the first half of 2021, we are now asking our landlords to support us, as other stakeholders have during the pandemic, through a reduction in rent for the December quarter in recognition of the current environment.”
Premier Inn shut its doors to most of its 800 hotels during the first national lockdown in March. Premier Inn only kept 40 open for essential workers – and reopened during the summer.
Subsequent further lockdowns and restrictions resulted in additional closures and a collapse in demand as tourism dried up.
Revenues fell 76.9% to £250.8 million over the period, and in September 2020 the company announced plans to cut 6,000 jobs.
Whitbread also furloughed 27,000 people and tapped up shareholders for £1 billion, while scrapping dividend payments.
U.K Commercial property landlords are facing an expected rent shortfall of at least £4.5 billion by the end of 2020.
Commercial Landlords need to prepare
The COVID-19 pandemic has the potential to impact the world economy at a level which could ultimately surpass the global monetary crisis of 2009 or even the great depression of the 1920’s.
Court deferral of rent not only will the COVID-19 crisis increase the frequency and magnitude of tenant defaults, but our courts have also taken the unprecedented step of suspending the bankruptcy process entirely.
Landlords will need to reduce their gearing and overall operating costs to survive, rent reductions and asset revaluations are going to be a norm for 2021.
The Government Guidance for Commercial landlords
Ministerial foreword
Our commercial property sector is respected across the world and has attracted record international investment in recent years. It acts as a foundation for our economy, providing our businesses with space to operate even as their needs change. Likewise, commercial landlords rely on a vibrant and growing business community to occupy their properties.
The current pandemic and the Government’s necessary restrictions to constrain it represents an unprecedented challenge for tenants and landlords. While some of these restrictions are now being lifted, we know that coronavirus’s economic disruption will continue to be felt for some time.
Our objective for the commercial property sector during this period is simple: to provide the right support to those in the chain of commercial property payments, from customers to tenant businesses, to commercial landlords and lenders, so that our economy can recover swiftly.
To date, this has meant enacting a moratorium on forfeitures and associated measures for tenant businesses and making available over £330 billion of guaranteed loans. This, in addition to a significant package of interventions including business rate relief and the world-leading Coronavirus Job Retention Scheme.
Now, this code will support businesses to come together to negotiate affordable rental agreements. It builds upon the discussions already taking place by giving those tenants and landlords affected by the crisis the tools to reach a mutually beneficial arrangement; ensuring that best practice becomes common practice.
Government has always been transparent that tenants who can pay their rent in full should continue to do so, whilst those businesses that cannot pay in full should communicate with their landlord and pay what they can. Landlords should also provide support to businesses if they too are able to do so.
This code of practice sits alongside other measures, such as the moratorium on forfeiture of commercial leases and changes to Commercial Rent Arrears Recovery, statutory demands and winding-up petitions.
They provide tenant businesses with the breathing space to work with landlords and other partners on a plan for a sustainable future. But these measures cannot last forever, which is why we have worked closely with leading business groups to publish this code of practice.
Our transition back to normality will take time. The Government will continue to monitor the economy to determine whether further intervention is necessary. This code of practice represents a good starting point on our road to economic recovery.
Principles
Transparency and collaboration: We have a mutual interest in business continuity that reaches far beyond the extent of this pandemic. We are economic partners, not opponents. Therefore, we will act reasonably, swiftly, transparently, and in good faith about this code and the COVID-19 crisis in all dealings with each other.
This is without prejudice to requirements of reasonableness as exist in any regulatory regime or in relation to legislation.
A unified approach: We will endeavour to help and support each other in all our dealings with other stakeholders including governments, utility companies, banks, financial institutions, and others to achieve outcomes reflecting this code’s objectives, and to help manage the economic and social consequences of COVID-19.
Government support: Where businesses (whether landlord or tenant) have received government COVID-19 related subsidies or reliefs (for example the Job Retention Scheme, loans, grants, business rates relief or VAT deferral), we recognise that this support has been provided to help businesses meet their commitments.
This will include a spectrum of costs from supplies of goods and services and rent and other property costs such as insurance, utilities, and service charges.
Acting reasonably and responsibly: We will operate reasonably and responsibly, recognising the impact of COVID-19, to identify mutual solutions where they are most needed.
We recognise cases where landlords and tenants have followed these principles but have not reached a specific agreement. They might both feel that a negotiated outcome could still be achieved.
Therefore, a third-party mediator could be employed by mutual agreement of tenants and landlords to facilitate negotiations (if the cost of this is proportionate and with the understanding, both sides will bear their own costs).
Can I petition to make my tenant bankrupt?
Practical terms no, however, there are benefits to serving a bankruptcy petition. The Coronavirus Act does not prevent winding-up petitions to place insolvent companies into liquidation.
Bankruptcy petitions are currently being adjourned by the courts. They are being postponed until a later date.
It is important to note: issuing a petition creates significant obligations and restrictions on a company’s ability to trade. These restrictions apply before the petition is heard. So, there are benefits to issuing a petition even if the hearing is delayed.
My tenant’s arrears nothing to do with COVID-19. Can I kick them out?
No, you cannot. The Coronavirus legislation applies to all business tenancies, with exceptions for tenancies at will, licences to occupy, and short-term tenancies of less than 6 months. It does not matter if the rent arrears are due to the Coronavirus or not.
The courts consider on a case-by-case basis any winding-up orders presented after 31 March 2021 and will consider whether the debt is due to Coronavirus or not as part of the process.
Author: Sarah Featherstone [email protected]
Date: 23rd of December 2020
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