Rent Deferment ‘Only Kicking Can Down The Road’

Most property owners were favouring deals that would see high street rents deferred, the online audience for Davis Coffer Lyons’ virtual conference, The Future of the F+B Property Sector, heard this week.

Drake & Morgan property director Marcus Brownlow said: “One of our first concessions to landlords was ‘give us rent free and extend the lease by a certain period,’ because we completely accept that landlords aren’t there to help us.”

But in his discussions with landlords he found that “they’re favouring the rent holiday and rent deferment,” which was an unviable option for business “because it’s just kicking the can down the road.”

Peter Borg-Neal, Oakman Inns CEO, agreed, adding that “deferment also doesn’t really help landlords too much in the here and now.”

He said that in his view, “the Government closed us down and therefore the Government needs to decide, it’s the only way forward.

“Deferment only kicks the issue down the road, and the idea of giving us a loan so we can pay rent doesn’t make any sense. The Government needs to do more.”

The event, hosted by DCL director Trevor Watson and CGA vice-president Peter Martin, also heard from landlords, funders and advisers. Reflecting on his experience with operators, David Roberts, partner at law firm CMS, said that in many of the conversations he’s been involved with, concerned parties are discussing a staged approach.

“A mixture of a rent-free period for the first few quarters after they open, followed by a turnover rent in arrears, until such a time that the businesses can hit like for like’s again.”

And it is by dealing with this issue in stages that operators may begin to see beneficial changes to the rent frameworks long-term, he said.

“Landlords are currently in a state of shock, they’re not at a stage where they’re willing to accept that the model may be broken,” he said. “But when we’re two quarters in post-opening, with CVAs and pre-pack administrations having become the new norm, then that trading scenario will demonstrate that the system is broken, and I can see that coming down the track relatively quickly.

“This situation will encourage people to re-assess the tenant-landlord relationship, it’s going to lead to a very interesting evolution of that relationship going forward.”

But, Margaret Walsh, executive director, DCL, said that restaurant companies that had undertaken CVAs recently shouldn’t now be surprised if landlords were not looking on them generously.

One property owner helping his tenants was John James, managing director, Soho Estates, who likened the current situation to a game of pass the parcel. But he said landlords shouldn’t be the only ones to start removing the wrapper. But added that he didn’t expect his tenants to start paying rent again until they were up and running again.

Rent payments remained the biggest immediate challenge facing the industry, but operators were split in their view of the most viable solution, CGA’s latest Business Confidence Survey had revealed, Karl Chessell, CGA’s business unit director for food and retail, told the on-line audience of close to 500 people.

A rent-free period and extended lease was the most popular solution for tenants (28%), closely followed by rent deferral (26%), and a further 20% said they were planning to reach a part-time payment agreement with landlords.

“There’s a number of potential solutions being put forward,” said Chessell, “and hospitality has done well as a sector to lobby together, but there remains this key issue around rent. It needs to be resolved in order for operators to sustain this survival period.”

He said that a large majority of operators (89%) said that they would support the idea of a debt moratorium, but the required timescale varied, with 39% claiming they would want a nine-month moratorium, and 32% wanting the freeze to last a full year.