As Covid continues to impact the economy, Matthew Peake, partner and head of strategic asset management at Cluttons, explains how landlords can work closely with their tenants to tackle rent arrears.

Covid has brought many challenges to the fore, with one of the topics receiving increased profile is that of rent arrears. A mountain of some £7 billion of uncollected rent has been cited (Remit Consulting, November 2021) by landlords of commercial properties.

Much of this has been put down to landlords and tenants wrangling over the arrears that were racked up during the pandemic, with the British Property Federation estimating 20% of cases are yet to reach an agreement.

As an advisor of landlords and tenants, there are examples on either side that have not represented either party well. Many of us will remember the stories about Burger King and other popular brands that were publicly lambasted for not paying rent to their landlords during Covid.

Landlords have not gone without ‘greedy’ slurs and Government measures have largely been to protect tenants rather than landlords. The new Code of Practice and draft Commercial Rent (Coronavirus) Bill, while not law yet, aims to intervene in situations where landlords and tenants have not agreed over how to share the arrears brought about because businesses were forced to close or operate under restrictions during the pandemic.

This could be a very important piece of legislation – it backdates to March 2020 and, if the BPF is correct in its estimate that 20% of cases remain unresolved, it could have a great impact on the industry as rents are ringfenced until an agreement is reached.

We are seeing some big names come out with their collection figures that are back to pre-Covid levels – the likes of British Land, New River Retail REIT, CapReg and Cadogan all highlighting a high rate of collection, with the industry average at 76% as of December 2021, according to ReLeased and Property Week. This is welcome news but I would hasten a guess that many of these involved landlords who sat down with their tenants early on in the pandemic to work out a way forward.

Cadogan, for example, was the first major name to come out in favour of turnover-based rents and restructured payment terms. Having worked with the company, we know that the first thing they did when the pandemic struck was speak to each tenant individually to understand their circumstances – a move that ultimately led to their creation of the Business Community Fund which underpinned the recovery of many Kensington & Chelsea businesses.

As advisors, we have the responsibility to represent our landlords’ brand and values in any negotiation. We have seen the best of both sides in our dealings since the outset of the pandemic. We have also seen tenants who have performed excellently during the pandemic cite Covid as a reason not to pay rent on some of its best performing units.

For the most part, the landlords who have done well have been the ones to actively collaborate – to get to know their tenants’ businesses, their challenges, and to work out a recovery plan together. That’s what we would always advise. After all, in property, collaboration and transparency is key to commerciality.

So yes, the new bill might be a gamechanger, but let’s hope it doesn’t have to be in the majority of landlord and tenant relationships.

*Matthew Peake is a partner and head of strategic asset management at Cluttons