Wishing you a forbearing New Year - ReSolve Group UK

Wishing you a forbearing New Year

ReSolve Group UK

Wishing you a forbearing New Year

This article was published by PROPEL INFO  here.

Why the worst case scenario doesn’t need to happen for retail and hospitality.

Many of us were looking forward to Christmas as an opportunity to relax after a strange and stressful year. But for small and medium sized business owners, 25th December brought something much more foreboding than Christmas dinner and the Queen’s speech – it also happened to be when December’s quarterly rent payment on commercial premises fell due.

Businesses which have been struggling with lockdown-induced closures and the resulting revenue squeeze have been supported by the UK Government’s moratorium on commercial evictions, which was introduced in March and has prevented landlords from repossessing commercial premises if businesses are unable to pay their rent as a result of the Covid-19 pandemic. This has meant that many businesses which have not been able to keep up rent payments have still been able to occupy their premises. The moratorium was initially scheduled to end on 31 December, but on 9 December, Housing Secretary Robert Jenrick announced that this would be extended to 31 March 2021. On that date, any outstanding or late rent payments will fall due.

This is going to be a big problem – especially in the hospitality and retail sectors. In September 2020, the trade body UKHospitality estimated the level of unsettled rent in the UK hospitality sector stood at around £1.06 billion. The retail sector, meanwhile, is reeling from the collapses of Arcadia and Debenhams, with more than 25,000 jobs now at risk between the two companies.

Most frustrating of all is that many of the businesses which are unable to pay commercial rent and may be facing eviction are otherwise viable businesses which are simply tightly cash constrained due to the almost total elimination of business during Q2-2020 due to the UK-wide lockdown as well as Lockdown 2.0 and, in many parts of the country, the current Tier 4 restrictions.

So what will happen on 31 March and what are the options for these troubled but fundamentally viable businesses?

Worst case scenario is that we see a mass of evictions in the second quarter of 2021, coupled with a stream of otherwise excellent businesses going into administration, with the employment and suffering that that would cause. I am vehemently certain that it does not need to come to this, though. Many landlords and other creditors will be willing to show forbearance on late rent and other debt payments, if business owners are proactive in negotiating with them, restructuring debt and working out new payment terms. ReSolve has successfully negotiated with creditors and landlords on behalf of a number of hospitality and retail businesses, which have subsequently been able to keep trading. Indeed, many landlords whom I’ve spoken to believe that forbearance and cooperation are the best options. With few businesses looking to take up new commercial premises in the current economic climate, landlords would rather work with existing tenants than have properties standing empty.

But this means that business owners need to start having the difficult conversations now; they should not wait until next March. Robert Jenrick put it best in his announcement of the rent moratorium extension when he said: “It is critical that landlords and tenants across the country use the coming months to reach agreements on rent wherever possible and enable viable businesses to continue to operate.”

The other option is that the Government steps in to extend the moratorium further. There have already been calls from some quarters to extend it until June 2021. I would content, however, that kicking the can further down the road does not make the can’s contents any more appetising. The moratorium will have to come to an end at some point as landlords themselves become cash constrained. I would be surprised if many landlords could realistically tolerate it extending beyond March. If businesses have not taken steps to negotiate with their landlords and work out new payment terms by then, they will find themselves in a very ugly situation.

At ReSolve, we are great believers in the power of communication. In advising cash constrained and troubled businesses, we have found time and again that an honest conversation with creditors, backed by a tightly worked out payment plan proposal, results in constructive negotiations of new terms which will allow our client the breathing space to trade their way back to a better cash position. With the Covid-19 vaccine now in place, I am certain that the hospitality sector can roar back stronger than ever in 2021, as long as landlords, creditors and companies are all on the same page. We urge companies to start having those conversations as soon as possible.

Cameron Gunn, Senior Partner, ReSolve

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