July the 4th saw celebrations on both sides of the pond this year as the UK’s untapped kegs broke their 15 week dry spell, albeit with strict rules still in place.
July the 4th saw celebrations on both sides of the pond this year as the UK’s untapped kegs broke their 15 week dry spell, albeit with strict rules still in place. The initial hope was that this shift would allow businesses to begin clawing back the lost revenue from lockdown, taking advantage of the summer months. The reality has been somewhat different. Despite Government advice calling for workers to return to the office, London’s financial district is still a ghost town, as are most city centres across the UK. Not only are social distancing rules limiting capacity, but it's also becoming clear that the nation is just not as confident as it once was and people are not returning to the bars, restaurants and shops. As many companies continue to keep staff working from home, those businesses that took advantage of worker footfall remain eerily quiet.
As the pubs and shops carefully start to open once again, the standoff of the last three months between landlords and small businesses will no doubt continue. Small businesses are starting to face the fact that there is going to be significantly reduced demand and revenue throughout the summer and there is a risk that landlord tactics will become more aggressive, as they look to claim months of unpaid rent from empty coffers. Despite our stuttered reopening, the battle is just beginning and there are still things small businesses need to do whilst trying to get customers back through the door. Renegotiating rent, joining campaigns and continuing to lobby the Government for greater protection should all be top of the list.
GOVERNMENT STEPPING IN
In the immediate term, the Government has extended the ban on the eviction of tenants until September 30th, but this is simply prolonging the inevitable build up of debt as small businesses use this opportunity to, quite rightly, protect themselves and retain cash. For many, the usual summer uptick is simply not there and cashflow is a huge concern. With short term solutions tabled by the government being quickly shot down, such as the relaxation of Sunday trading laws, it's time for the Prime Minister to turn his attention to long term protection measures.
The Government published a Code of Practice governing commercial property relationships during the COVID-19 pandemic (the code). The code applies to all commercial leases held by businesses that have been negatively impacted by the COVID-19 crisis. In a nutshell, this code outlines how landlords and tenants should share the cost of the pandemic. However, this code does not go far enough in protecting small businesses, simply because it’s voluntary. It says tenants should pay rent where they can, they should be shown clemency where they can and that they should agree rental agreement plans, but stops short of an outright ban on evictions. As many businesses have reopened to massively reduced trade, this is simply an opportunity for landlords to begin calling rent in once again, regardless of that businesses’ profit margins.
LET YOUR VOICE BE HEARD
So what can small businesses do? There are campaigns emerging as the summer continues that can help protect your business. When the British Institute of Innkeeping was surveyed prior to lifting of lockdown rules on the 4th of July, CEO Steven Alton called on the Government to back our pubs with extra furlough cash, grants and VAT tax breaks, arguing that “for the majority, opening with a limited capacity means they will be trading at a loss.” This is now becoming a reality and a new campaign has emerged in London, calling for a “National Time Out”.
Those behind the campaign are lobbying the Chancellor to make some fundamental changes. Firstly, to cover the cost of the four months the businesses were made to close. Secondly, for the rest of the year, businesses pay 10% of their turnover, instead of full rent and thirdly, that landlords should get a debt repayment break from their banks or help from the Government’s Covid loan guarantee scheme, which they can now access.
As we see many small businesses continue to struggle throughout the summer, my hope is that more of these initiatives are created and that the Government begins to understand that they need a similar level of support in the reopening as they did during lockdown - the costs associated with trading again are simply not covered by the reduced amount of customer revenue in most cases.
WHAT ARE PRIVATE LANDLORDS DOING
The fear of eviction is at the forefront of any struggling business owner’s mind, however there has been movement from some of the UK’s landlords offering support. Capco, the owner of Covent Garden in London, has offered to restructure lease terms until the end of the year in an effort to help cash-strapped tenants survive and to also bolster occupancy across its estate.
The turnover leases they are offering are assessed as an amount on top of the base rent. Once the store’s sales reach the turnover threshold in a particular period, a fixed percentage will then be applied to the revenue. This gives the landlord security. It ensures that the tenant will pay a certain base rent, plus a higher amount if the store does well. This is an important step as landlords must understand that if their tenants go bust, there’s no income at all and that compromises on both sides must be made.
Landlords across the UK have also agreed to switch their business customers to monthly rental payments. At the moment, many small businesses would struggle to get their final accounts approved by their auditor if they were made to pay another quarter in advance, so this ability to increase your runway is vital. In the UK, leases have traditionally only seen upward only rent reviews, along with payment in advance and for lengthy durations. It’s positive to see that there is now some movement from UK landlords to support their small business clients. I urge you all to negotiate your rental agreements, in line with our shrinking economy. Simply put, if you don’t ask you don’t get.
THE RISKS ON THE HORIZON AND CONCLUSION
Landlords are now starting to negotiate with tenants and the government’s Code of Practice, coupled with ongoing campaigns such as the “National Time Out”, show that there are positive signs around protection for SMEs and that they’re ramping up. As we look forward, the pressure on small businesses will remain for the foreseeable future and my main concern is that not enough is being done as we rapidly approach the end of the ban on the eviction of tenants in September.
Landlords will be watching their tenants closely in the coming months as previous growth opportunities disappear. Startups across the UK that were looking to expand their office space will no longer do so, after seeing the efficiencies of remote working. Add to this, the risk that developers might begin eyeing up the less profitable retail and leisure businesses, with the aim of converting them into flats, it’s clear there is still a fight for small businesses and the potential for relationships with landlords to deteriorate in the coming months.