Retail rent debt exceeds £2 billion following third quarter of government financial support

As reported by The Grocer, retail rent debt has climbed to £2.2 billion from March to December 2020. It is believed that this makes up over half of commercial tenants’ total debt of £4.2 billion.

Whilst it is true that some businesses have exploited the rent (and other) enforcement moratoriums, there are many who are genuinely unable to pay.

For those businesses who have been unable to trade during lockdown (whether at all – or on a vastly reduced basis such as online or takeaway), an extension of business rates relief will simply not be enough. Indeed, many businesses – particularly hospitality in tier 3 and 4 areas – will have lost out on the crucial and profitable Christmas and New Year’s Eve trade, which is traditionally essential to tide them over the early and leaner months of the new year.

In those circumstances, and with the next quarter’s rent payment looming, the debt levels in retail and hospitality may well rise further. Many businesses will have reached, or be nearing, the limit of existing debt arrangements and, having been unable to trade (or at vastly reduced levels), they will have had little to no income over the last month. Similarly, where rent concessions have previously been agreed with landlords, they may have expired / be due to expire. In those circumstances, property owners may be reluctant to extend further concessions, as they will have their own finances to consider.

Overall, what retailers, restauranteurs and hoteliers need – as well as property owners – is certainty and a road map out of lockdown, so that they can plan accordingly. Without the ability to plan ahead, financial risks and uncertainties are increased which, unfortunately, could lead to a rise in insolvencies, restructurings and a loss of jobs.

Many in the retail, hospitality and leisure sectors are therefore calling for other reliefs, such as an extension of the reduction in VAT to 5% for hospitality, and a wholesale reform of the business rates system (in addition to an extension of rates relief). More radical proposals such as government-backed property bonds and rent forgiveness have also been suggested, although it is doubtful that the Treasury has the appetite for such further reliefs given the level of government debt arising from the support that has already been provided.

Before Christmas, the government did announce a ‘review of the outdated commercial landlord and tenant legislation, to address concerns that the current framework does not reflect the current economic conditions’, but this is unlikely to produce results in time. Similarly, whilst the Supreme Court judgment on business interruption insurance may release some insurance pay outs to policyholders, this will not benefit everyone, and even those due a payment may not receive funds prior to the March quarter day. Whilst some small businesses are now, finally, receiving overdue grants, and rates rebates, they may also be insufficient to cover the next rent payment, if there has been little to no income over recent weeks.

If any businesses foresee a crunch point arising – whether related to the next rent quarter day, the (current) end dates of the enforcement moratoriums, or otherwise, early planning and action is key. The earlier that consideration is given to financial pressure points, the better and quicker plans can be put in place to alleviate difficulties, and to protect and rescue distressed businesses – or to maximise recoveries and achieve an orderly closure if that is required. BDB Pitmans’ restructuring and insolvency team can assist with all of this and have a strong track record of helping all stakeholders of businesses in distress.