Landlords in the UK are deeply dissatisfied with the government’s decision to extend the eviction ban for struggling retailers. Adding insult to injury, a judge has ruled that a retailer was paying too much rent, further exacerbating the rent issue in the country.
According to the Times newspaper, private property companies are contemplating legal action against the government for prolonging emergency legislation until next March. Landlords are frustrated with the British Property Federation’s lack of effectiveness and are discussing the potential formation of their own lobby group. There are even discussions of seeking support from the opposition Labour Party.
While retailers will resume paying business rates on their premises next month, landlords are still unable to enforce rent payments from their tenants. This has created a sense of injustice among landlords who argue that they should not have to bear the burden while struggling retailers are protected.
Since the ban on evictions and winding-up petitions was implemented by the government 15 months ago, property owners have lost over £6 billion in rent, as estimated by Remit Consulting. While some smaller tenants have managed to pay their rent or receive support from landlords, larger retailers such as Boots, Superdrug, JD Sports, and H&M have taken advantage of the legislation to defer payments.
Although the government has agreed to safeguard arrears and establish an arbitration system until next March, landlords are concerned about the uncertainty this creates regarding rental income well into the next financial year. Analysts warn that these new measures could jeopardize the financial well-being of some of the country’s largest property companies, particularly shopping center owners like Hammerson.
In another blow to property owners, a judge has ruled that the annual rent for a retail unit in Central London should be less than half of what it was in 2011. This ruling, which may have implications for prime West End rents, came about in a case involving textiles retailer S Franses. The judge determined that the retailer should pay £102,000 in rent per year for its store on Jermyn Street, compared to the £220,000 it had been paying before its lease expired in 2016.
This ruling sets a commercial precedent that could significantly impact the retail property market, especially for vacant units. The decision to reduce the owed rent is likely to prompt new tenants to question why they should pay excessively, thereby affecting reversionary values for landlords. David Cooper, who represented the tenant in the case, believes that the ruling will bring greater realism to the market and encourage tenants to negotiate for lower rents.
Given these developments, it is possible that the removal of the upward-only rent review clause from leases may be the next logical step, according to Cooper. This would further tilt the balance of power towards tenants and could have far-reaching implications for the rental market in the UK.
Overall, UK landlords are becoming increasingly discontented with the extension of the eviction ban and the ruling on lower rents. They argue that they are unfairly burdened while struggling retailers receive protection. It remains to be seen how landlords will react to these challenges and whether any measures will be taken to address their concerns.
Useful Links:
1. Government guidance on letting properties
2. Property Investment Project: Resources for landlords
