Real estate landlords must be thinking ‘when are we going to catch a break?’ Or more to the point ‘when is the government going to give us a break?’
This week, in all his wisdom, communities secretary Robert Jenrick announced an extension to the ban on evicting commercial tenants until the end of the year.
The moratorium was introduced in April to protect retail and hospitality businesses that could not trade during lockdown and was later extended to 30 September.
But the ban has had some unintended consequences for the property sector that have left landlords holding the bag.
The vast majority of tenants and landlords have engaged with each other and where there have been cashflow issues on the tenant’s part, rent deferments or waivers have been put in place.
But there are a small number of unscrupulous tenants – often big, sophisticated businesses typically backed by hedge funds or private equity that have actually traded well during Covid – that are ignoring rent in the knowledge that no property owner can challenge them and exploiting the situation to improve their own liquidity at the cost of owners and investors who are having to cover the gap.
Looking at the rent collection updates by listed property companies, they all have a small proportion of rent, typically 2% or 3%, where terms have still not been agreed.
It amazes me that six months after the outbreak of the pandemic they still have not been able to agree to payment plans or waivers.
Without doubt, this will be well-capitalised companies either refusing any kind of dialogue or unjustifiably demanding waivers.
We’ve spoken to dozens of portfolio managers during the crisis and this issue has been a recurring theme. One had a data centre tenant, operating in an industry that has expanded during the pandemic, that refused to engage for four months and has only recently settled.
It is not the first time that commercial property landlords have been on the wrong side of unintended consequences of legislation.
The dreaded company voluntary arrangement (CVA) has been systematically abused by tenants to row back on the terms of leases that they had agreed to in good faith.
Due to the structure of the creditor process, landlords do not really have much of a say in the passing of a CVA but are heavy casualties of it.
Just this week creditors gave the nod to New Look’s controversial CVA plan, which includes landlords accepting no rent on 68 shops and as little as 2% of turnover on 402 stores.
It is clear that the use of CVAs has changed from genuine rescue plans to rewriting property leases for the long term.
The eviction ban protects under pressure retailers from a minority of unscrupulous landlords, but the unintended consequences that allow well capitalised companies renege on rent needs to be urgently looked at.