Lockdown restrictions might be easing in the UK but, for many business and residential tenants, Wednesday 24th June could prove to be a very bleak and possibly a ‘perfect storm’ in terms of landlord and tenant relationships.
Wednesday is, of course, the June Quarter Day when commercial tenants will be expected to pay their rent and service charge for the next three months and, despite the government extending the moratorium on landlords taking action against tenants for non-payment of rent until the end of September, this will be particularly difficult for those occupiers who have been unable or unwilling, to pay their rent due to Covid-19 and lockdown. Remit Consulting’s research into the rent and service charge collection of large property management firms showed much lower collection rates than in previous years, and that over half-way through the previous quarter, around 25% of rent and 30% of service charge payments had not been made.
Why is this important? For the average person, whether a shopkeeper, manufacturer or office-based business pays their rent is of no interest. To them the consequence of a landlord not receiving his rent is irrelevant. For those tenants unable, or unwilling, to pay the previous quarter’s bills - the start of the next quarter will be hugely challenging and, for shopping centres and the high street, in particular, casualties have to be expected.
The impact of Covid-19 and the UK’s lockdown has placed strains on many landlord/tenant relationships and, in some cases, the communication between parties has broken down. The recently published government “Code of Practice for commercial property relationships during the COVID-19 pandemic” might help to move the relationships along. It suggests that: “In considering a tenant’s request to renegotiate their rent,” landlords may wish to bear in mind a number of factors, which include “The tenant’s previous track record under its lease terms.”
The impact of what happens on June Quarter Day could have widespread ramifications for the wider economy. It is not just about a few retailers facing bankruptcy (we’ve become used to that news), nor is it just about landlords taking a hit on their income. What it is also about is the loss of income by pension funds and life assurance businesses and their cash flows when it comes to paying policy holders. It is also about the funding of property developments in the future and the provision of homes and workplaces and the redevelopment of our town centres.
In private, many asset managers and institutional investors are terrified about what might come to pass on June Quarter Day and fear that it could be worse than March Quarter Day, when, on average, less than half of rents due were collected across the residential and commercial sectors.
With a view to getting ahead of the curve, we are aware of asset managers in the commercial sector who, are undertaking detailed analysis to identify businesses which are most likely to be unable to pay their rent as part of their risk assessments. Others in the commercial property market are considering their positions regarding rent deposits and guarantees.
It is fair to say that some asset managers are fearing a large number of insolvencies across their portfolios and any subsequent redundancies could have a direct impact on the residential markets where a tenant’s ability to pay rent is often reliant on them being employed. The timing of the end of the government’s furlough scheme will be crucial if the economy is to avoid a significant rise in unemployment, which many in the market fear is inevitable.
Immediately following June quarter day, Remit Consulting will be receiving and collating data from property managers, landlords and others in the commercial and residential property markets. The findings will be available soon after.
To receive a copy, or to participate in the study, please contact us now.