Collaboration is key for rent collections

A mountain of some £7bn of uncollected rent has been cited (Remit Consulting, November 2021). Much of this has been put down to landlords and tenants wrangling over arrears racked up during the pandemic, with the British Property Federation estimating that 20% of cases are yet to reach an agreement.

As an adviser of landlords and tenants, I can cite examples that have not represented either party well. Many of us will remember the stories about Burger King and other popular brands that were (and some continue to be) publicly lambasted for not paying rent to their landlords during Covid.

Landlords have not gone without ‘greedy’ slurs and government measures have largely been to protect the tenants. The new Code of Practice and draft Commercial Rent (Coronavirus) Bill aims to intervene in situations where landlords and tenants have not agreed over how to share the ‘ring-fenced period’ arrears i.e. those that accrued during the pandemic because businesses were forced to close or operate under restrictions. Under the new bill, a binding arbitration will be established for those debts, backdated to March 2020, that cannot be resolved in accordance with the code.

This could be a very important piece of legislation with potentially a great impact on the industry as rents are ring-fenced until agreement is reached.

We are seeing some big names come out with collection figures back to pre-Covid levels – the likes of British Land, New River Retail REIT and CapReg highlighting a high rate of collection, with the industry average at 76% as of December 2021 according to ReLeased/Property Week. This is welcome news, but I would guess that many of these involved landlords who sat down with their tenants early on in the pandemic to work out a way forward.

Cadogan was the first major name to announce turnover-based rents and restructured payment terms. The first thing it did when the pandemic struck was to understand each tenant individually – a move that ultimately led to its creation of the Business Community Fund, which underpinned the recovery of many Kensington and Chelsea businesses.

As advisers, we represent our landlords’ brand and values in any negotiation. Since the outset of the pandemic, we have seen tenants who are willing to engage in discussions about rent payments and have performed honourably despite the terrible difficulties experienced, and we have seen those who cite Covid as a reason not to pay rent on some of their best-performing units.

The landlords who have done well are those who got to know their tenants’ businesses and challenges and to work out a recovery plan – that’s what we would always advise. After all, in property, collaboration and transparency are key to commerciality.

So yes, the new bill might be a gamechanger but let’s hope it does not have to be in most landlord and tenant relationships.

This article has previously been published by Property Week.