Occupiers and landlords of commercial property should partner on a path towards full economic reopening by taking decisive action to address commercial rent challenges, says the CBI.
The CBI believes commercial property tenants should resume paying rents as normal when emergency coronavirus legislation protecting businesses from evictions and statutory demands ends on June 30, except in cases of extreme financial difficulty caused by this year’s lockdown measures.
A CBI position paper proposes that firms in the hardest hit sectors should continue to be protected for a further six months, with companies which can demonstrate lockdown-related falls in revenue of more than 30% in 2021 given additional breathing space.
But with almost nine in 10 firms now open, continued government support for business costs and the easing of social restrictions, an extension of protections for commercial tenants should only support those in most need. The CBI proposals aim to ensure the majority of occupiers are paying full market rents from June 30, when the current protections end.
The CBI also recommends that unpaid commercial rent debt accrued during lockdowns – up to June 30 – should be ringfenced and negotiated separately between occupiers and landlords. Many tenant-landlord relationships have reached satisfactory agreements on both legacy rent arrears and future arrangements. The CBI proposes a time-limited extension of protections in relation to rent arrears, to encourage parties yet to reach agreements to arrange settlements which reflect the financial impact on both parties.
It also says the government should set out principles for binding arbitration on rent debt and ensure there is a mechanism to deliver decisions where negotiations fail or businesses refrain from negotiating. This could include recommended levels of ‘debt forgiveness’ based on the overall impact of coronavirus on businesses’ finances and a structure for repayment of arrears.
CBI Chief UK Policy Director Matthew Fell said:
“With the success of the UK’s vaccine programme, a watchful easing of social restrictions and business confidence growing, now is the time to optimise commercial property interventions towards getting all parts of the economy back to business.
“The blanket government protections for non-payment of commercial rents should be lifted. While some sectors remain heavily restricted or fully closed, ongoing protections should be targeted towards the firms most at risk in these sectors.
“The conversation about commercial rent debt needs to be dealt with separately. There is a huge deficit in unpaid commercial rents, which both tenants and landlords acknowledge is unlikely to be fully recovered.
“The majority of tenants and landlords have already come together for adult-to-adult conversations to settle commercial rent arrears; those businesses yet to enter into negotiations should now do so and work hard to reach an agreement, or risk court decisions that may be less favourable.”