The Secret Retailer: ‘Financial cliff edge looms without rent standstill deal’

The purpose of extending the moratorium would be twofold – to stop the cliff edge that would otherwise almost inevitably going to occur, and to bring reluctant landlords to the table to negotiate rents more fairly. 

If you look at the number of retailers that haven’t paid their full rent bills so far this year, and suddenly in the first week of October there are demands for that cash to be paid, let’s just say the game to be in will be corporate insolvency. It would hit retail extremely hard. We simply can’t allow it to happen.

“Rents are above market value but it’s protected by contract law and the only way retailers can break those contracts is with CVAs and pre-packs”

The whole market understands now that retail rents are overstated – that’s not a controversial comment. Therefore, landlords are relying on a period of grace until lease expiries or breaks, during which they will be bringing in excess rents that are well above market value.    

Next was the first retailer to publish this but rents on lease renewals are 30-40% down on current rental rates. That shows the extent to which retailers are being overcharged right now.

The danger is that landlords are going to starve businesses of oxygen by making them pay these inflated, uncompetitive rates. 

False market

That’s before you even consider the impact of Covid-19. All Covid has done is highlighted the plight of retailers. Shopping habits that were changing pre-Covid have accelerated during this period and now online shopping is really impacting on bricks and mortar, there is no doubt about it.

So the expectation that we have got to pay full rents – and sometimes significant rents – during a period when we were receiving no income, is just crazy. It’s a ridiculous financial penalty to place on a business when you have no income but still have your central overheads. 

Post-lockdown, there is a reduced level of income from our stores, so we should be paying a reduced level of rent on them. At the moment, rents are above market value, it’s a false market, but it’s protected by contract law and the only way retailers can break those contracts is with CVAs and pre-packs.

If the moratorium ends in September that’s exactly what will happen – and there will be lots of them.   

“Landlords have retailers in handcuffs and the only thing that stops the key being thrown away is the moratorium”

Let’s be clear: other than the period we were closed during lockdown, this is not a case of retailers not wanting to pay. What we want is for economic circumstances to be recognised and for landlords to share the pain.

If there is that willingness to share the burden, there will be a solution.

But at the moment, landlords have retailers in handcuffs and the only thing that stops the key being thrown away is the moratorium.  

The hope is that by extending the moratorium, more landlords would be willing to negotiate because it becomes a cash flow issue for them when they cannot turf out retailers who are paying zero rent. 

If you extended the moratorium for 12 months, I think 80% of landlords would come to the negotiating table. 

No other option

I don’t believe it should necessarily require an extension for that to happen but the lack of enthusiasm from landlords to be fair and reasonable during this period is such that it is going to need something heavy-handed.

Other than severing all leases altogether and rebasing them – if the government could even mandate that legally − I really don’t see another way to go; the majority of larger landlords have just kicked the can down the road. They haven’t addressed the issue at all.

I’ve found them intransigent – they know there’s an issue, but they are basically just saying: “Tough.”

A lot of landlords, if they negotiate at all, do so on terms that are favourable to them. They often want to extend break periods, say from July 2021 until December 2021, because they know they will be overcharging you for those six months. They don’t want us to break in July and then switch to the market rent, which would be much lower.

“I don’t think landlords work hard enough to understand retail dynamics and there is laziness or lack of understanding from quite a lot of landlords to want to resolve these issues”

We all know flights are much more expensive now than they were six months ago, but you have the option of taking it or not taking it. If we double our prices, the consumer has the option of whether to buy the product or not. With commercial property, we don’t have that option.    

I don’t think landlords work hard enough to understand retail dynamics and there is laziness or lack of understanding from quite a lot of landlords to want to resolve these issues. 

There needs to be a forum of opinion and extending the moratorium for six months would certainly encourage greater levels of constructive engagement. 

Unless something is done about this, at the end of the moratorium there will be a stack of winding-up orders and writs and statutory demands. That, without an extension, is the inevitable outcome.