The government’s moratorium on landlord action for commercial rent arrears, aimed at giving businesses breathing space because of enforced closures, ends on Friday, March 25.
According to industry figures, there is a £7.4 billion shortfall in rents from occupiers.
Russell Miller, a partner at national property consultancy Vail Williams, said: “The Romans apparently considered the Ides of March as a deadline for settling their debts – two millennia on, the month takes on a similar significance here in the UK because of Covid-19.
“Landlords have been prevented from being able to evict tenants of commercial properties for non-payment of rent as a result of the Coronavirus Act 2020.
“When this comes to an end on March 25th, we could well see a flood of litigation against tenants and a potential rise in insolvency, which could further hinder the recovery of the retail and leisure sectors.
“Billions of pounds are owed in unpaid rent and it is anyone’s guess as to how much will be recovered. Some landlords will be under pressure from their own lenders to recoup debt.
“A mandatory arbitration process is in place to tackle debts accrued during closures but there will inevitably be cases where compromise is not possible, with bitter disputes.
“Some retailers and leisure-related companies with physical premises may have traded well enough to cover the backlog of rent with turnover but the Omicron variant will have reduced footfall in the significant trading month of December, further impacting upon ability to pay.”
Turnover rents trend
He added: “Whilst the retail sector did see a slight improvement in 2021, albeit from a fairly low base caused by the lockdowns in 2020, we expect to see yields continue to be quite soft in this sector as it remains a riskier prospect – not just because of the demise of the high street, but also because of the trend towards turnover rents from retailers.
“Rather than paying a static rent, retailers have, rightly, preferred to pay a rent which reflects their profitability.
“However, this has created enhanced volatility of income stream for investors, and with more uncertainty and volatility comes higher risk.
“Investors have shied away from paying more for that income stream as a result, with the exception of super-prime locations.”
Mr Miller, a registered property receiver and Chair of The Association of Property and Fixed Charge Receivers (NARA), said the pandemic had a dramatic effect on the property market last year – good and bad.
He explained: “Throughout 2021 we saw investors of industrial assets experience some fantastic returns in a near-zero interest rate environment as consumers switched to online purchases, creating strong demand for fulfilment warehousing and last-mile delivery premises.
“Meanwhile the office market experienced ups and downs as Covid came in waves, with retail languishing amid the continued rise in e-commerce.”