Retailers are adding to pressure on the government to find a solution for nearly £3bn of unpaid rents accrued during lockdowns in the UK with proposals for binding arbitration.
The British Retail Consortium has written to housing secretary Robert Jenrick arguing that unpaid liabilities accrued between the start of the first lockdown in March 2020 and the end of June 2021 should be ringfenced and subject to a further six months’ protection from legal action.
If the parties cannot reach agreement in that time, they should then be subject to binding arbitration.
“Retailers want to be given the opportunity to trade their way out of debt,” said the letter, which has been seen by the Financial Times and forms part of a response to a government consultation. “This mechanism gives them the space to be able to do so.”
Remit Consulting estimates that retailers account for about half of the £6bn owed to commercial property landlords as a result of the pandemic, which has forced many stores to close for extended periods.
The BRC says that while many stores have reached agreement on arrears, around a fifth of properties are still subject to dispute.
The proposal is similar to one put forward by UKHospitality last week, and not too far removed from the position of major landlords and the British Property Federation.
“Three letters on Robert Jenrick’s desk should serve as a good basis to move forward,” said Dominic Curran, property policy adviser at the BRC.
“This proposal does not cost the government anything and it should be reasonably easy to legislate because we already have the code of conduct,” he added, referring to a voluntary protocol published last year.
Commercial tenants have been protected during the pandemic, but a ban on evictions and winding-up petitions expires at the end of June and is unlikely to be extended.
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“The government can’t simply leave a vacuum when the moratorium ends, it has to leave a process,” said John Fletcher, director of the dispute resolution service at the Royal Institution of Chartered Surveyors.
He warns of a “tsunami of cases” heading for courts and “dysfunctionality in the commercial property market” if a resolution mechanism cannot be agreed.
Landlords and their tenants have already faced each other in court despite the ban. Large retailers including Sports Direct have argued that they should not have to pay rent arrears as a result of coronavirus. The courts ruled that the pandemic did not free tenants from their rent obligations.
The decisions “shifted the balance of power more towards landlords”, said Alison Hardy, head of real estate dispute resolution at law firm Ashurst.
But landlords needed to be realistic, she cautioned. “Can tenants pay, or will they just go bust? There’s clearly a wave of insolvencies waiting to come through . . . the likelihood of landlords getting all the money back is slim.”
Curran said the vast majority of retailers accept that they are liable for rent but “they just think landlords should share the pain”.
Both landlords and tenants accept there is little prospect of government funding, having previously lobbied for burden-sharing schemes similar to those introduced in Scandinavia.
The government has acknowledged concerns over the rental cliff-edge, stating that it “will not hesitate to intervene” if there is evidence that discussions are not taking place, and raising the prospect of “additional measures to preserve viable businesses and the jobs that they provide”.
But it remains hopeful that court cases and bankruptcies can be avoided.
“Landlords and tenants will come to an agreement,” said one Whitehall official. “If you are a landlord, the time not to call in the debt is when the business is opening up again. People are pragmatic.”
Additional reporting by Dan Thomas