If Landlords Don’t Support Their Tenants, None Will Survive
June quarter day is approaching; what does this mean for the UK’s thousands of restaurants, cafés, bars and leisure operations? Will rent be demanded? Will outlets be reopened by then?
It is a highly nerve-wracking time for the entire UK economy, no more so than tenants that operate retail and leisure businesses. For many, their fate is in the hands of their landlords — and these landlords need to realise the role they must play, Lorenz Consultancy founder Anthony Lorenz said.
“Landlords need to realise they are in the same boat as their tenants and investors,” he said. “We need to get them to see that the Titanic is sinking; to escape from being pulled under we need to get all parties away from the boat. This is a time for conciliation, to have open conversations about problems that everyone is facing so we can find a way through. It is the time for people to come to quick, immediate deals.”
Facing Empty Streets
When Boris Johnson, the prime minister, ordered pubs, clubs and restaurants to close their doors on 20 March, the wage-support scheme also announced did little to stymie the wave of panic that descended on the sector. Yes, wage and business rates support would help an operator survive through weeks, perhaps months, of zero turnover, but a large question mark still hung over the subject of rents. On whose back should the burden of unpaid rents fall — the tenant or the landlord?
The government also ordered a moratorium on commercial landlord sanctions for at least three months, giving tenants a three-month window to come up with rents. This has helped, Lorenz said, but only for so long.
“Deferring rent just kicks the problem down the road,” Lorenz said. “We are approaching June quarter day; if tenants are also asked to pay the rent owed from March quarter day, they won’t be able to. Deferment helps in terms of cashflow, but landlords need to accept that there are no winners from the current situation. The negotiations that currently need to take place won’t see champagne bottles being popped at the close.”
Lorenz Consultancy is working with restaurants, leisure operators and landlords across London and the rest of the UK to facilitate new deals that help find solutions to the many questions surrounding the sector. Lorenz argued that the burden of unpaid rent needs to be shared across the industry if the UK’s leisure sector is to emerge at all.
“Areas such as Leicester Square will become empty streets as the smaller, independent restaurants will close,” he said. “Leicester Square isn’t all chains; it’s small tenants that can’t afford rents if they don’t have turnover. We could see 30% of Leicester Square’s restaurants go bust.”
Negotiate A New Deal
There are examples of landlords and property owners actively looking to ensure that streets will be alive and occupied in the future. Grosvenor and Cadogan Estates are both offering rent-free agreements to some tenants that would have struggled to pay March quarter day rents, as did Argent for its retail and leisure occupiers at King’s Cross.
As Cadogan chief executive Hugh Seaborn said: “It is heartbreaking to see the potential damage to communities and to help avoid this we continue to stand shoulder-to-shoulder with the numerous shops and restaurants that are at the very heart of the area.”
Lorenz did believe that if conversations are open and efficient, agreements can be reached that will go some way to mitigating the downturn for both landlords and tenants.
“There are many ways that a landlord could help a tenant, such as giving rent free periods in exchange for adding a year to a lease at the end of the term,” he said. “We are having success with some landlords, for example for the casinos that we work with around the UK.”
Crucially, landlords that are willing to negotiate contracts now are much more likely to have fully let spaces once we emerge from the storm. A landlord that lets a tenant fold could struggle to re-let a property to a business still assessing the impact of new social distancing measures — how will spacing tables in a restaurant several metres apart affect potential profits, for example? It would be far easier to face the new normal with a tenant that has a proven, successful business, Lorenz said, and it is up to landlords to make that possible.
This feature was produced by the Bisnow Branded Content Studio in collaboration with The Lorenz Consultancy. Bisnow news staff was not involved in the production of this content.