Businesses 'at risk of insolvency or takeover' as trade bodies plead for rent support

A joint letter from UKHospitality (UKH) and the British Retail Consortium (BRC) to Business Secretary Kwasi Kwarteng and Michael Gove, Secretary of State for Levelling Up, Housing and Communities, has demand clarity over the new arbitration system being set up to determine the size of rent arrears that businesses will have to pay.

The letter, which was sent last week and seen by Sky News​​​, expresses concerns about the Government's policy that 'those tenants that can pay in full should do so'.

"Interpretation of this statement is key," Kate Nicholls of UKH and Helen Dickinson of the BRC said.

"A tenant's ability to pay rent arrears will depend on their viability not just at the point of arbitration, but over the duration of the period in which they are expected to pay arrears.

"This must take into account arising liabilities and obligations of the business including reasonable forecasts of turnover and trading conditions."

Businesses unable to pay their rent due to the pandemic are currently protected from having their commercial premises repossessed by landlords under the lease forfeiture moratorium, which came in at the onset of the first national lockdown in 2020 and is now due to expire on 25 march 2022. 

In June, the Government announced that a new arbitration mechanism would be introduced to help landlords and commercial tenants resolve disputes over arrears.

UKHospitality has previously estimated that around £2.5bn in rent arrears has been built up by hospitality firms during the course of the pandemic.

Nicholls and Dickinson argue it is 'vital the criteria considered when determining whether a tenant can pay any rent arrears include any that would cause the tenant to take on further borrowing, restructure, not be able to meet other legal and contractual commitments, or place themselves at risk of insolvency or takeover', and call for at least a 50% write down of rent arrears for businesses that have been severely impacted by the Covid-19 crisis.

They also urged ministers in the letter to allow companies' auditors to sign a declaration regarding the extent of the rent arrears they are able to repay.

“This would streamline the process for arbitrators by putting the burden of assessing viability on applicants," they wrote.

“While we recognise that not all businesses use auditors, it could be an option for those applicants that wish to use them.”

Elsewhere, the pair  also warned against arbitrators being given excessive powers, such as the ability to force a tenant to remain in a property to repay rent arrears even when 'neither they nor the landlord might want them to do so'.

“Instead, we propose that arbitrators’ decisions should be confined either to conditions that both landlords and tenants have submitted in their proposals or to ones that both agree to during the arbitration process.”