COVID-19: retail occupiers demanding rent free should be considerate and cautious
A couple of days ago I cautiously wandered into a local food store, hand sanitiser applied and social distancing at the forefront of my mind.
Interestingly, shelves were well stocked. The over 70s clearly hadn’t made too much impact during their allocated shopping hour and dedicated teams were replacing products in every aisle.
What I did observe (and these are currently common place) were the signs asking shoppers to be considerate and respectful when buying the key products that are at the centre of ‘panic buying’.
Don’t stock up on more than you need. It is a simple message from retailers. The hope being that if we can all apply restraint then supply can be maintained and we will all get through the COVID-19 crisis together.
In retail property we need to see the same principles being applied. The retail property sector did not have its troubles to seek before anyone had heard of coronavirus. The biggest retail landlords and funds were openly talking about the massive challenges they were facing as retail property values slumped. If the response to the current crisis is mishandled then the results could blight retail property for years to come.
By the end of last week there was a torrent of anecdotal evidence to suggest that retailers of all kinds were, with immediate effect, demanding rent holidays from landlords. This is not a surprise. Some swift restraint and reflection is required though.
A distinction can be drawn, for example, between essential and discretionary retailing. Food retailers are experiencing demand akin to the Christmas shopping surge. Fashion retail however, is seeing a steep sales decline. As one commentator observed – ‘who needs a new outfit to stay in-doors’.
So, we expect certain retailers to require urgent assistance. For others it could be almost ‘business as usual’ or they face extraordinary demand. Those who don’t need emergency measures should therefore allow what flexibility landlords can muster to be afforded to those most in need. Don’t stock-up on more than you need!
A balance is also called for. The best solutions in the current circumstances will be those arrived at through agreement. If a retailer needs help now, can they offer a quid pro quo? We have, for example, heard of retailers offering to extend their lease term in return for some reliefs during the current crisis.
In its latest move the UK Government is seeking to protect tenants from eviction for non payment of rent during the current crisis (a position yet to be followed by the Scottish Government). This and other measures are aimed at supporting ongoing conversations between landlords and tenants and will hopefully be used as a tool for that purpose.
The symbiotic relationship between retail tenants and their landlords has become ever more fragile in recent times. The undeniable truth is that each needs the other. The sector needs to pull together and in many instances ‘do whatever it takes’ to get to the other side of coronavirus.
Government measures being introduced in the last week are part of the picture. Rates abatement for 12 months, temporary relaxations on planning restrictions and the like will assist but are tenant focused. Will landlords get help too? Commercial agreements between landlords and tenants are another element in the plan to keep the sector afloat.
We are aware however, that some occupiers are moving forward and demanding rent holidays whether their landlords agree to them or not. It is not yet clear how that will play out. Caution is required however. After previous crises have passed and the ‘in the moment’ sympathy has evaporated, litigation fights have ensued. Tenants are well advised speak to their landlord and to properly consider the terms of their leases before forging ahead (and we are blogging on that elsewhere).
For now the hope is that the retail sector follows the examples we hope to see in our communities. Be understanding, work together and look out for each other!
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