The reopening of the retail sector: considerations for landlords and tenants
In an effort to mitigate the economic impact of the Covid-19 pandemic while still seeking to limit the spread of the virus, the Government has announced that most non-essential shops, department stores and shopping centres will be allowed to reopen in June 2020.
In brief, the timeline for reopening is as follows:
- From 1 June 2020, outdoor markets and car showrooms will be allowed to open for trade; and
- From 15 June 2020, all other non- essential retail premises will be permitted to open, including clothes shops, bookshops, furniture shops and indoor markets.
In all cases, the retailers will have to implement and follow the strict social distancing guidelines in the same way that supermarkets and pharmacies have done over the course of the lockdown. Trying on clothing will not be permissible and returned items will need to be stored separately for 72 hours. Substantial cleaning and customer control will be necessary.
The reopening is, however, great news for embattled retailers, and their landlords, but it does not mean that rents will now be paid by those tenants in arrears. On the contrary, it is anticipated there will be greater default in relation to the June quarter than the March quarter as tenants incur the cost of reopening their premises and reinstating staff who have been on furlough. For some tenants, there will be a real issue as to whether it is financially worthwhile to recommence trading from certain premises. This is due to the likely reduced income and extra expense due to the social distancing requirements and the presumed reluctance of customers to travel or risk infection, especially if their lease is due to expire in the relatively near future or they have a right to break.
Certain major retailers, such as John Lewis and Next, intend to reopen on a phased basis and, of course, with hospitality and entertainment venues remaining shut, shopping centres and high streets will not return to their previous state for a considerable time to come.
Given the current, and proposed further, restrictions on rent collection and forfeiture, there is a risk that many tenants will not pay their rents even if they can afford to do so; preferring to use their cash for other purposes. The practical advice remains for landlords and tenants to seek to work together, share information about their financial positions and agree rent concessions, rent holidays, re-structuring of leases, and/or deferred payments where sensible. For cash-strapped landlords in particular, the only route may be to take proceedings in order to secure judgments for arrears, interest and costs which can be enforced once the restrictions are lifted.
Jack Beeston is an Associate in the Property Litigation team.
The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.